Managing through Economic Uncertainty

Why it Makes Sense to Maintain the Long View
Amid the continued global spread of COVID-19, most organizations continue to be concerned about the impact the pandemic will have on their financial viability. While not-for-profit organizations are by no means exempt, there is a silver lining when it comes to your capital reserves.

Your capital management plan has likely been structured to consider both your immediate and long-term capital needs. That means any funds you anticipate requiring over the next year or two should already be held in shorter-term, more stable investments such as short-term bond funds. It is only assets with longer time horizons that should be exposed to the equity markets—giving you runway to weather the current volatility in advance in stock prices.

Cautious optimism
Although there is no crystal ball in investing, it can be helpful to look at previous periods of market dislocations for perspective. Historically, bear markets—which are characterized by a decline of at least 20% from a market’s high—can extend up to one or two years, with an average of 18 months before prices once again rise. Conversely, bull markets occur more frequently and last for longer durations. Although every investor understands that the past doesn’t equal the future, markets have continued to grow, regaining any losses. While it can be challenging in the face of volatile markets, it is important to remember that markets recover from bear markets as economies recover from recession.

Making wise decisions
While the odds of recovery are in your favour, risk mitigation is still a priority. While it can be challenging, remaining invested during periods of market volatility is the prudent course of action. When markets are volatile and declining, it may seem appealing to want to take action. However, unless there is an urgent need to access funds, we would caution against selling into a declining market. As we all navigate through the pandemic, there are several strategies to keep in mind.

First, if you do need to complete immediate or urgent capital projects, aim to redeem assets from your shorter-dated holdings. Selling into a declining market only ensures that you lock in your losses; you will never recapture those losses.

Second, you may want to consider deferring non-essential capital projects, such as cosmetic unit improvements. Most organizations understand the imperative to continue investing in major upgrades or repairs that affect the building envelope, but it may be possible to postpone smaller, less immediate projects.

Finally, as you continue to draw down on your holdings, be sure to speak to your Investment Funds Advisor about rebalancing your portfolio. Rebalancing is an important strategy so you’ll be well-prepared to meet your future capital requirements.

At Encasa, our experienced investment team can help you think through your long-term needs. That way, you can restructure your asset mix to safeguard your capital reserve fund, and ideally avoid crystallizing any market declines you may otherwise experience by selling equities at a loss. To learn more about how we can help you navigate the current economic uncertainty, contact us today.