What Do I Do About Coronavirus?

Here we are on Feb 29 2020, in the midst of a Coronavirus correction. I have no idea how this is going to play out, and neither does anybody else. Markets could bounce back Monday, or this could be the start of a global recession. If I had a crystal ball or a time machine, I wouldn’t be writing this article right now.

So, what do I do?

Well, conventional wisdom says do nothing. Keep calm and rebalance. I rebalanced recently, so I just bought a bunch of bond ETFs. Now, I rebalance again to sell some of those bond ETFs and buy stock ETFs since they are cheaper. If you haven’t rebalanced in awhile, then this is a good reminder of why it’s important to get in the habit.

But Tim, I really want to do something.

If I’m worried things are going to get worse and I want to take a defensive posture in the market, then I simply up my bond percentage by 5% or 10%. If I think the market has over-reacted, then I might take a more aggressive posture by lowering my bonds by 5% and buying even more stocks. My point here is that investors should avoid the ‘all-or-nothing’ mindset, and instead make minor tweaks to their asset allocation. All too often I’m hearing people getting greedy go all-in “Coronavirus is an overblown hoax!” or getting fearful and pulling all-out “It’s the start of Coronageddon!”. These extreme greed/fear reactions can get you into trouble, and will cause regret later if you don’t guess right. If you absolutely need to do something beyond a standard rebalance, then trust your instincts and make a minor adjustment to your bond allocation one way or the other.

I have a bunch of money on the sidelines. Should I wait to invest it?

Where’s that crystal ball?? I don’t know what’s going to happen, so I can’t tell you if now is a good time to invest a bunch of money. In times of severe volatility like we’re seeing right now, it’s probably a prudent approach to use dollar cost averaging when investing large sums of cash. Dollar cost averaging is a fancy way of saying spilt it up into chunks. Make a schedule for when you’ll invest so you don’t play an eternal ‘should I invest or not’ mental game. For example, I’ll invest 1/3 now, 1/3 in 6 months, and 1/3 next February after the US election. I’m giving up potential gains over the next year if things bounce back up, but I’m limiting my exposure to short-term volatility in case there’s a further collapse.

What do I do with my cash in the meantime?

The best place for cash right now is a high-interest savings account. Savings accounts suck at the big banks, but there are lots of smaller banks and credit unions that offer good rates for online accounts. Here’s a great comparison chart. For what it’s worth, my personal emergency fund is in an Alterna Bank e-savings TFSA account earning me 2.25%. Many of these options are great, and savings accounts are considered a zero-risk investment since they are insured up to $100K or more per account by the Canadian Deposit Insurance Corporation (CDIC) or a similar provincial organization. If your money is already in your online brokerage account, there are high interest savings ETFs that serve the same purpose (although they are not insured).

It feels like the world is ending. Can’t I just put my money under my mattress?

No, that wouldn’t be a good idea. If it’s ‘the big one’ then your physical cash won’t be worth anything anyway. Also, my understanding is that the death rate of this virus is on the lower side. So, in the worst-case scenario we’re talking about a situation more like The Leftovers (2% of population gone), and less like Avengers: Endgame (50% of population gone). This scenario is horrifying and still scares the shit out of me, but I do think that capitalism will endure.

C’mon Tim. Give me something good.

Okay, here’s a clever idea if you’re feeling a little shaky about the markets. Now is a really good time to look at impact investments as a way to further diversify your portfolio. There are a whole slew of green bonds and community bonds available that are locked-in for a period of time (3-10 years), but are quite beautiful in that they are completely uncorrelated to financial markets. For example, I own both a SolarShare solar bond and a Centre for Social Innovation (CSI) community bond. Both of these bonds are completely unaffected by this crisis, and will continue paying me interest every 6 months like clockwork. Thankfully, a bunch of new offerings have just been released so impact investors in Canada and Ontario have more options! Of course you should evaluate the risk before you buy, and only allocate a small portion of your portfolio (personally, I'm at 10%).

If you live in Toronto and want to check out some options, I’m hosting the Good Investment Market at The Green Living Show March 13-15, 2020. You can learn about the following impact investments:

Canada-wide

Rhiza Capital

CSI Community Bond

CoPower Green Bond

Sketch Community Bond

Ontario-only

Fair Finance Fund

SolarShare Solar Bond

FYI I’m confident that we’re able to get CoPower and SolarShare bonds into RRSPs and TFSAs via Questrade ($150 fee applies). Also, Rhiza Capital has offers a sweet 30% refundable tax credit to BC investors.

Most importantly, just stay calm and rebalance.

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Don't let your money do things you wouldn't