What COVID-19 Can Teach You About Crafting Your Portfolio

COVID-19 affected just about every sector, particularly the travel industry and markets took a plunge last March, bringing about a whisper of the "R" word: Recession. The markets have continued to climb back up, but we can all learn takeaways based on experiences with COVID-19 besides generalities like "stay away from airline stocks." 

Let's explore more.

How You Can Strategize During a Pandemic

It's not a good idea to make sweeping generalizations such as "all stocks were down." Certain industries did see growth. How many times did you use Doordash NYSE: DASH when you just couldn't eat another bite of your own cooking? Or Zoom NASDAQ: ZM, which allowed us all to see family and friends online, attend meetings for work, take classes, and go to worship church? While Zoom’s valuation multiplied tenfold since its IPO, the company has come down from its high of $568.34 last October due to people returning to the office. Zoom's current share price is $361.83. 

Tip 1: Diversify. 

What if you'd invested completely in, say, Norwegian Cruise Lines NYSE: NCLH? You'd have been in for a rude awakening, as stocks tumbled over 70% and faced zero revenue. Cruise lines as a whole pursued debt to pursue expansion and capital returns and even looked into the bald face of bankruptcy. 

A diversified portfolio may have cured some (but maybe not all) of your woes. A mutual fund or index fund would have offered you a broad base from which to enjoy certain gains and — well, yes, some losses, too. However, these losses likely wouldn't have been as severe as your full-on portfolio of cruise line stocks. No single investment option eliminates risk completely but it sure can work to reduce it.

Always aim for a diversified investment portfolio that emphasizes low expenses and tax efficiency — even during "normal" market times, not just when the seas get a little rough. But especially then.

Tip 2: Buy and hold, buy and hold. It's a mantra.

You want to take Warren Buffett's advice here: Don't hold a stock for 10 minutes if you don't want to hold it for 10 years. You want your relationship as an investor with a specific company to stand the test of time. You want to feel confident enough in your stock ownership to hold a company for years and years. Buying and holding was the key to managing this past year. 

Do nothing? Sounds… boring. But what would have happened if you cashed out when stocks plummeted last year? You would have majorly missed out on gains in recovery and sold when stocks were at their lowest. Staying the course means you would have watched your money come back to you — and possibly more than that.

Doing nothing might seem like the wrong thing to do, but in most cases, you'd have done exactly the right thing (and hopefully that's what you did do). If you sold, keep this in mind the next time: Always, always ride out bear markets.

Tip 3: Don't wait till you think the market might bottom out. Buy. 

As soon as you hear a whisper of market volatility, buy. You might try to wait for the "right" and "best" time to buy, but waiting could end up costing you a lot of money. Even though the "buy low, sell high" suggestion sounds like worn-out advice from octogenarians, it still makes sense. 

However, an index fund always presents some opportunity because you can always tap into some piece of the market that will help your portfolio. Don't hesitate the next time (though hopefully there will never be a next time) a pandemic gnashes its teeth. 

Tip 4: Ride the tech wave.

If there's any specific lesson to learn from COVID-19, it's not that tech has had its moment — it's the front-and-center star. You only have to utter the word "Zoom" to get a head nod (and maybe a grimace) from every office worker in every household in America. 

The tech-heavy Nasdaq 100 outpaced the S&P 500 by about 30 percentage points during the pandemic.

Even smaller tech companies charged ahead. Look no further than Peloton NASDAQ: PTON, the home video cycling company. Gym closures forced the stock up over 200 percent. Take a look at a few other companies. Have you heard of these?

• Fastly Inc. (NYSE: FSLY) sells tech that enables more complex video and gaming technology. 
• Chegg Inc. (NYSE: CHGG) corners the market in textbook rentals and other education technology services.
• Zscaler Inc. (NASDAQ: ZS) is a cloud-based information security company.

Things have changed, and particularly in the case of technology that helps people communicate safely in a post-pandemic world. 

Tip 5: You need an emergency fund.

Even if you didn't touch your investments or buy a single stock, you should have been bolstering your emergency fund during the pandemic. 

If you can't pay for a $1,000 surprise expense for your car or another emergency right now, you need to put together your emergency fund. Many people lost jobs during the pandemic and had to furlough. Your government stimulus checks could have given you a great start on an emergency fund. 

You want to put your emergency fund somewhere liquid, such as in a high-yield savings account, money market account or checking or savings account. 

How do you decide how much to save in your emergency fund? Let's say you spend about $3,000 per month on general expenditures, such as your rent payments, utilities, food, and other necessities. You should save between $9,000 and $18,000. 

However, you may want to adopt the 3/6/9 rule instead, depending on your job situation. This means you may want to: 

• Save three months of expenses if you have a steady paycheck, have no mortgage or dependents.
• Save six months of expenses if you have a steady paycheck, have a mortgage or dependents. 
• Save nine months of expenses if you have irregular income or if you are the only one in your family who earns money. 

Ready to Ride a Pandemic Again?

Yep, probably not, right? You probably never want to see this happen again during your lifetime. However, these ideas can also apply directly toward small and large recessions, which occur naturally in economic cycles. The next time they happen, you'll be ready.