Rethinking wealth in a post-COVID-19 world

      

by Chief Investment Office 13 Jul 2020

Thought of the day

The coronavirus pandemic has spurred a renewed focus on the most important things in life. The results of the latest UBS Investor Watch survey showed that 75% of investors have concluded that life will never be the same again. A full 88% now see staying healthy as their top priority.

But at the same time, the pandemic has affected how investors think about their money. Seventy percent were affected by the economic contraction and market volatility—one quarter significantly so. Specifically, our survey highlighted three major investor concerns:

  • In the short term, 56% fear having sufficient liquidity to weather another pandemic.
  • Over the longer term, 65% will have to cope with reduced retirement savings, following the impact of the crisis on their investments.
  • More than half worry they will be forced to leave a smaller inheritance and are concerned that they may be a financial burden to their family if they get sick.

These concerns resonate strongly with the financial objectives of our Liquidity. Longevity. Legacy.* wealth management framework. The approach divides family wealth across three objectives: securing liquidity for living expenses, investing for lifetime needs, and providing for later generations. The approach suggests investors should set aside two to five years’ worth of net expenses in cash and high-quality bonds, in addition to reserving some safe borrowing capacity to provide for cash flow needs in the event of a worst-case bear market event. These moves provide a “buffer” to allow the remainder of the portfolio to be invested for growth over the medium and long term.

Taking a disciplined approach to liquidity needs can help overcome behavioral biases that can lead to rash investment decisions, like selling out of longer-term assets during periods of volatility to meet cash flow obligations. In our view, one of the key lessons from the crisis is that it is important to stay invested. Our survey results echo this: 81% of respondents worry about another market decline before the pandemic is over, but 79% of investors believe there is opportunity in the current environment. The post-COVID-19 world will be a new paradigm for markets, as well as for people’s priorities. It will be more indebted, less global, and more digital. To make the most of the opportunities in this environment, the key focuses for investors will be: 1) finding income; 2) managing volatility; and 3) spotting winners and avoiding losers. Our recent report “Reset for the recovery” tells investors how to do this. Click here for more.
For more detail on our latest Investor Watch survey click here.

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