Shielding Your Portfolio From Post-Pandemic Risk

In 2020, 52 billion disposable masks were manufactured across the globe. Demand for hand sanitizer increased 600%, and ice cream sales experienced year-over-year growth of almost 14%. What once seemed the unimaginable soon became our normal.

Is your portfolio prepared for what might come next in the post-pandemic world?

Pandemic Look Back

On February 19th, 2020, the S&P 500 peaked at 3,386 points. Just one month later, the S&P 500 had plummeted 34%. In a span of just weeks, the iShares Core US Aggregate Bond ETF dropped almost 7%, gold dropped 11%, and Bitcoin was down 40%. The world had never seen such a sudden slowdown in the global economy, as GDP dropped over 32% in Q2 2020. Households across the nation felt the economic impacts as the national unemployment rate peaked at almost 15%.

Since then and over that next 18 months, most financial markets have come roaring back. The worldwide stock market valuation broke it’s all-time high after hitting $95 trillion in November 2020 - despite still being in the middle of a coronavirus resurgence. Major indices across the United States have all repeated hit record highs. The Dow Jones closed over 35,000 points for the first time ever in July 2021, and the S&P 500 most recently hit its new all-time high in August. Needing just two months to recover from its sharp drop last year, the National Bureau of Economic Research recognized the 2020 downturn as the shortest recession ever.

Marketwide Lingering Impacts

Although we quickly escaped the recession, the coronavirus pandemic and the government’s response could both have major implications in financial markets for years to come.

In preparation for uncertain times, Americans began saving more money than ever. In April 2020, the average savings rate peaked at 33.7% - almost four times the saving rate just two months prior. Current savings rates still remain higher than pre-pandemic levels. With more capital on hand, more people are injecting money into financial markets than ever before, as a record 10 million brokerage accounts were created in 2020.

Markets have been continually centralizing towards large companies. The five largest publicly traded companies (Alphabet, Amazon, Apple, Facebook, and Microsoft) comprise approximately 20% of S&P’s total net worth - a concentration level that has not been seen in 70 years. During the pandemic, Apple became the first company to hit a $2 trillion market cap, with Microsoft doing the same less than a year later. However, not all is rosy with equities. 86% of CFOs currently believe the stock market is overvalued, and there’s plenty of data to prove them right. Today’s S&P 500 price-earnings ratio is among its all time high.

Another new development forming in the post-pandemic world of investing in increased interest in sustainability. 70% of people say they are more aware of how human activity threatens the climate and degrades the environment compared to before the pandemic. In turn, people are investing more into such causes. 2020 marked the fifth consecutive year of significant ESG-rated fund growth, with ESG investments accounting for 25% of all money invested in U.S. stock and bond mutual funds during the year. Even investing firms agree, as over half of institutional investors believe sustainable investing is more important to consider today than it was pre-COVID.

The New Age of Investing

With a new age of investing upon us, how might investors proceed in the post-pandemic world? During times of uncertainty, smart investors continue to know the value of stable assets. Before the WHO declared COVID-19 a global pandemic, investors transferred almost $700 million of 401(k) plans into bond funds. They also transferred $597 million into stable value funds. Most investors are wisely keeping expectations low and continuing to invest for the long-term. 70% of investors state that they are currently investing for stable growth, compared to only 26% of investors seeking high returns in the short-term.

You might be tempted to invest only in markets tied to high vaccination rates. However, evidence suggests higher vaccination rates do not impact equity markets. Also, international equities markets have become even more strongly correlated over the past year. It’s never been more important for investors to not only diversify their equity holdings but look at their total portfolio diversification.

We’re yet to know the full impact inflation will have on financial markets. However, many investors are already preparing for major implications. 65% of millionaires are concerned about inflation. Most chief financial officers within the United States currently cite inflation as the biggest external risk to their company. In a survey by the New York Federal Reserve, the general public predicted a higher rate of inflation than any other prediction in any prior Fed survey ever performed. To protect against rising prices, a record amount of funds are flowing into Treasury inflation-protected securities (TIPS). From January 2020 to August 2020, roughly $8 billion was invested in TIPS. During the same period in 2021, almost $47 billion has been invested.

Last, investors have increasingly been flocking to safe havens. During the pandemic, gold prices topped $2,000 per ounce and hit its all-time high. Silver broke $28 per ounce for the first time as an unprecedented amount of money was invested in the commodity. At the time of writing, Bitcoin - now considered by many to be a safe haven asset alternative - is holding a $1 trillion market cap and is within 10% of its all-time high. With only 16% of full-time workers stating they believe the pandemic has forced them to delay plans to retire, many investors are being patient and putting their money into safer opportunities.

Farmland: A Post-Pandemic Opportunity

In the wake of the pandemic, farmland has emerged as a compelling investment opportunity. Known for its long-term stability, farmland offers recurring annual cash flow from crops and has appreciated in value nearly every year since World War II. As a diversification tool, farmland is negatively correlated to stocks, bonds, and Treasury bills, making it a valuable asset for balancing portfolios.

Farmland is also considered one of the strongest hedges against inflation. Many crops benefit from rising prices, and farmland values often move in line with the Consumer Price Index (CPI), providing a reliable inflation hedge. In fact, farmland has been shown to outperform traditional inflation hedges such as gold or silver.

Additionally, farmland has proven resilient during economic downturns. Due to its low correlation with broader economic cycles, farmland tends to experience less volatility and can preserve capital during recessions. As a historically stable, diversifying, and inflation-resistant asset, farmland can offer long-term potential for investors navigating the post-pandemic landscape.