I say this both figuratively and literally. During this time, it is especially important that you focus on fitness and remain as healthy as possible, physically as well as mentally. But I also would like you to think of a barbell when thinking about your finances, most notably, your stock market allocation.
Over the past few months, there has been a basket of stocks that has truly outperformed the rest of the market exponentially. These stocks include many stay-at-home stocks like Amazon, Peloton, Netflix, etc. As the country begins to reopen, it is important that you keep your eye on these stocks in addition to the market laggards who were left behind. Many of those are traditionally known as value stocks, or income stocks which pay dividends.
In my mind, it is important to own a few of the stay at home stocks just in case we see a resurgence of COVID-19 over the next 12 months, but also it is time to begin investing in some of those quality stocks that are still down including banks, industrials and some of the energy names. Before diving headfirst into these segments, do your research. Not all stocks are created equal. Look at the balance sheet of a company before investing. Do they pay a dividend? Is the company profitable?
In the past, Exchange Traded Funds (ETFs) have been a great way to invest, but this time is different. You don’t want to buy an ETF which has a basket of stocks when some companies are not as good as others. You need to pick and choose very wisely at these levels and invest in best in breed companies.
Here are some ideas:
Financials: JP Morgan Chase, Wells Fargo
Energy: Chevron, EOG Resources
Technology: Apple or Microsoft
Consumer Staples: P&G, Johnson & Johnson
All of these companies listed above meet my criteria for a value/long-term investment. I am not looking to make money overnight. This isn’t the way to invest. Short-term investing is not the way to play this market. It’s easy to watch stocks like DraftKings, Peloton, Beyond Meat skyrocket 10-15% and be envious. Some of these are trends and may not be good long-term investments.
Back to the barbell reference. I would keep 40% in the stocks that have performed well during COVID-19, 20% in cash/bonds and then another 40% in the high-quality names that have been left behind.