How did the Pandemic Portfolio hold up?

By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

I was the first investment blogger to ‘jump on’ the investment risks that might be created by the coronavirus. In fact, when I first penned on the subject in February of 2020, the virus was not then known as COVID-19. And we were not yet in a global pandemic. New cases were just starting to move around the globe, and most felt that the strange new coronavirus would be contained. Today, I can’t claim that I knew it would result in the first modern pandemic. But I did address the risk, and I did offer some thoughts on how an investor might prepare, if they needed to protect their wealth. Let’s have a look, how did the pandemic portfolio perform?

Here’s the original post from February of 2020.

How to prepare your portfolio for the coronavirus outbreak.

Do nothing, stay the course

That almost goes without saying. You don’t fix a ship in a hurricane offers our friends at Mawer Investments. If you have a solid investment plan, and you are investing within your risk tolerance level —

Image by S K from Pixabay

De-risk your portfolio

This suggestion is controversial to some, but to me it is common sense. Fear was mounting in February of 2020, and the stock markets were offering a minor hissy fit. It is safe to say that most investors are not safe. They are investing outside of their risk tolerance level. These market scares offer the opportunity to discover that you are investing outside of your comfort level.

The timing from February of 2020 to de-risk was still quite favourable.

That would have allowed an investor to move to their risk tolerance level before the market corrected by nearly 35%. While that move to a lower risk portfolio might create lesser returns over time, it can remove the greater risk of permanent losses. Investors are known to too-often sell out in fear near the bottom of the market declines. Of course that’s the complete opposite of – buy low and sell high.

And a typical balanced portfolio would have delivered about 21% to 22% to date, from February of 2020. That’s a greater return compared to the Canadian stock market from that date.

Pandemic portfolio construction

I had suggested that investors consider two of the greater risk-off assets. Risk-off will refer to the defensive investments that protect your portfolio. And typically, investors run to these assets in times of trouble. That influx of dollars can drive up prices.

Gold is known as a safe haven asset.

Gold was the lead image on the original post on how to prepare your portfolio for the pandemic. The precious metal did shine in the pandemic, when needed.

I had suggested that investors consider U.S. long term treasuries. They punch above their weight as risk mangers (keeping an eye on those unruly stock markets.

You’ll find those long term treasuries in the Permanent Portfolio post.

And mostly, at the core is a sensible and well-balanced portfolio. From the original post …

. the best investment strategy is to diversify across geographic locations, asset classes and currencies to protect against the unknowns.

Ray Dalio

That said, one of the beautiful all-in-one balanced asset allocation ETF portfolios would have performed wonderfully. It’s the same story if you held a balanced ETF portfolio.

If an investor had shaded in some gold and long term treasuries, they would have experienced some greater returns, and would have been treated to better risk-adjusted returns.

The pandemic portfolio performance

For demonstration purposes I used the asset allocation offered on the ETF Portfolio page, for a balanced model. You certainly could have (successfully) held a conservative, balanced growth or all-equity model through the pandemic. But for those with a balanced model that holds some risk-off assets, the inclusion of gold and treasuries would have helped the cause.

I’ve run the portfolio models from January of 2020 to the end of October 2021.

And here’s the individual asset returns. I’ve used a U.S. ETF for treasuries due to no-availability in Canada for the time frame. BMO did recently introduce a Canadian dollar version. They also offer a U.S. dollar version and a currency-hedged ETF.

We see that Gold and treasuries were a wonderful portfolio addition. The outperformance compared to the core Canadian bond index is considerable.

You’ll find gold and treasuries and REITs and commodities offered for consideration in the MoneySense ‘advanced spud’ ETF portfolios.

Here’s the comparison to the traditional balanced ETF portfolio that would use 40% bonds. In this pass I moved the rebalancing to every 3 months, from 1-year. We can see that boosted returns for the pandemic portfolio. It is beneficial to rebalance regularly when assets are moving in explosive fashion.

The outperformance is considerable.

The stages of the pandemic

Things have changed throughout the pandemic. And different risks have shown their face during the pandemic. Inflation and the threat of rising rates has been the main story in 2021.

And while we should keep our core portfolio mostly strong and consistent throughout, we might shade in some themes along the way, if we think we can respond to changing conditions. Over the last year and more I put a few ideas on the table. Keep in mind, it’s not advice, was not advice. I put ’em on the table for consideration. You decide if you want to dig in.

Investing in Canadian energy stocks would have just demolished the market from the time of that post. That said, things can change in a hurry. In my most recent MoneySense column I looked at the risks of investing in the Canadian oil stocks. One of the risks listed (coincidentally) was the pandemic and economic risk. Right on cue that new variant arrived that is spooking markets once again.

Perhaps this post is timely.

I also found when investing in Canadian bank stocks was opportune to say the least. That was the cheapest they had been in 20 years. The market beat is considerable.

And I’ve suggested that investors look to commodities as an inflation hedge. I like bitcoin at 5% portfolio weighting. I’ve suggested emerging markets, that’s where they keep the favourable demographics. Emerging markets have been a laggard, but I still think that’s a good long-term portfolio holding for geographic diversification.

All said, one could have boosted their returns beyond the pandemic portfolio shown above, with some strategic moves.

Stay the course

Once again, if you have a plan and you’re investing within your risk tolerance level, carry on. If you’re early in the accumulation stage you’ll have to hold your nose and buy at times during modest and severe corrections. Over the decades you might be treated to very good gains by way of an aggressive stock-heavy portfolio.

For retirees or those in the retirement risk zone, we need to protect. We might be well-served by an all-weather portfolio. And no risk or fear or headline or virus variant should knock us off-track.

Thanks for reading. Don’t be shy, we’ll see you in the comment section.

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Dale Roberts is the Chief Disruptor at A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on Nov. 27, 2021 and is republished on the Hub with his permission.

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