Navigating the Post-Pandemic Investment Landscape

How to manage the potential pitfalls and opportunities after the one of the biggest global market disrupters of modern times.

When crises happen, we often look to history to guide us. But there’s no real analog for the COVID-19 pandemic, which brought global economies to a virtual standstill and prompted unprecedented sums of government support.

“You can look back to the Spanish flu, or the investment booms after World Wars I and II, but all those comparisons fall short because of the uniqueness of this crisis,” says Liz Ann Sonders, Schwab’s chief investment strategist.

Here’s what Liz Ann and three other Schwab experts had to say about how investors can help mitigate the effects of the pandemic on their portfolios—and potentially seize the opportunities afforded by the recovery.

U.S. stocks

We’ve never seen the stock market fall and recover as steeply and quickly as it did in the spring of 2020. With stocks pushing fresh records for much of this year, how should investors position themselves for what comes next? “We’re entering an environment in which we could see one of two extreme outcomes,” Liz Ann says. “One could be a return to the Roaring ’20s—and a new era of prosperity—while the other could be a short-term pop that fizzles and we get inflation but little or no growth. As contradictory as it may sound, investors can prepare for both scenarios.”

Action 1: Consider rebalancing more frequently

If you normally rebalance your holdings once a year, think about doing it once a quarter, which may help you stay in line with market trends by adding low and trimming high. That said, rebalancing can trigger capital gains and losses, so be aware of the tax implications of any sales or purchases.

Actively managed funds—in combination with lower-cost index funds—can help offload some of this work onto the professionals who get paid to identify inflection points and mitigate taxes. Of course, active management comes at a price, so it’s important to keep a close eye on fees.

Action 2: Focus on value

“With valuations at or near historic highs, there’s a renewed focus on value factors,” Liz Ann notes. Regardless of market conditions, Liz Ann says investors would be wise to look beyond labels and evaluate companies’ underlying fundamentals.

“Just because a stock is in a value index doesn’t mean it represents a good value,” she says. “Conversely, even some growth-oriented technology stocks may be attractive at their current prices.” Liz Ann recommends screening for value by price-to-earnings, price-to-sales, and/or price-to-book ratios, as well as looking for stocks with characteristics such as steady dividend growth and low debt-to-equity ratios.

Action 3: Diversify

Investors might want to consider adding tactical exposure to sectors that may be particularly well positioned to profit from the post-COVID environment, says David Kastner, senior investment strategist at the Schwab Center for Financial Research. Among them:

  • The building products, construction machinery, and construction materials subsectors have already advanced thanks to the housing boom—and would likely stand to benefit further from additional government infrastructure spending. “Utilities that have made a big push into green energy also could see a boost from new forms of support for addressing climate change; however, it’s a defensive sector that tends to underperform when the markets rise,” David says.
  • Energy stocks are benefiting from the continued expansion of global growth. “Oil prices are up, and energy companies are being more disciplined when it comes to their expenses and investments—resulting in more attractive valuations,” David says, “but keep an eye on oversupply risks to oil prices.”
  • REITs are catching investors’ attention for several reasons:
    • Relaxed COVID-related restrictions and money in consumers’ pockets may be reducing investors’ pessimistic views on brick-and-mortar retail REITs—even as the strong e-commerce trend continues to be a tailwind to warehouse and industrial REITs.
    • Falling unemployment and higher housing prices may filter through to higher multifamily occupancy rates and rents—a positive for residential REITs.
    • More workers than expected may be headed back to the office, opening the potential for office REITs to make up lost ground—though hotel REITs may not see business travel fully recover for quite some time.
  • Health care stocks are often profit generators and are likely to do well as the population continues to age. “Current valuations are still relatively low, and balance sheets are pretty solid, with plenty of cash for dividends and value-adding deals,” David says.
  • Wireless-service companies, which reside in the Communication Services sector, also could benefit if government expands access to broadband and accelerates the rollout of fifth-generation (5G) cellular technology. “The Biden administration’s infrastructure plan includes a proposal to expand wireless broadband access, which should help bolster these companies’ growth,” David says.

International stocks

The recovery from last year’s global recession has kicked off a new economic cycle that could see international companies outperform their domestic counterparts for the first time in years. “After a full market cycle of outperformance, U.S. stock valuations may be overstretched relative to their valuations, while international companies look less expensive by comparison,” says Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

Action 1: Right-size your exposure

If the rapid appreciation of U.S. stocks has left your global allocation under your target, consider making small shifts—selling U.S. positions and buying international—as part of your regular rebalancing routine. “International stocks are more attractively priced relative to their U.S. counterparts and may produce better annualized returns in the current cycle,” Jeffrey says.

Action 2: Go big

Supply-chain disruptions may have primed large-cap international stocks for some of the biggest gains. “The original thinking was that larger companies would be hurt more by the pandemic since they’re in more countries, but in fact it became more of a negative for smaller-cap companies that rely on a limited number of suppliers,” Jeffrey says.

As a result, companies have pursued supply chains in multiple regions to reach customers in local markets and work around future disruptions,” Jeffrey says. “Those moves aren’t cheap, giving bigger companies with deep pockets an advantage.”

Action 3: Consider China

China may have been the epicenter of the global pandemic, but its economy has quickly snapped back. Indeed, China was the only economy to grow in 2020, and it did so without cutting rates to zero or engaging in the same level of fiscal stimulus as many developed economies. “As the global recovery picks up steam this year, companies in China—and those in the rest of emerging Asia that do business with China—are likely to benefit,” Jeffrey says. “Better still, China has been able to support a return to growth without sowing the seeds of future financial risks.”


One of the big stories of 2021 has been the rise of long-term interest rates in response to the rapid rebound in growth, and the Federal Reserve’s decision to back away from its 2% inflation target in favor of a more-relaxed response to an uptick in inflation. But not all bonds have been affected equally, and federal relief is providing an important backstop against potential corporate defaults.

Action 1: Consider a ladder

Short-term interest rates will rise eventually—but when and by how much is anyone’s guess. That’s why Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, suggests bond investors adopt a laddered approach, or a portfolio of bonds with staggered maturity dates. “As each bond matures, you can potentially reinvest the proceeds into one with a higher yield, increasing your average yield over time,” she says. “That way, your portfolio isn’t as susceptible to rising rates, yet you still have the opportunity to capture more income as you roll over each bond.”

Action 2: Think aggressively

Those seeking greater income and who are comfortable with the risk also may want to lean into those areas of the market that are a bit more uncertain but which pay higher rates. “The credit market is relatively strong right now, meaning riskier investments—such as high-yield-corporate and emerging-market bonds, which tend to do particularly well during periods of global growth—may be less likely to default,” Kathy says.

Action 3: Consider munis

The $1.9 trillion American Rescue Plan Act of 2021 allocated $350 billion to state and local governments to help plug budget holes caused by the pandemic. “Before that assistance, some governments were going to have to do some pretty heavy restructuring to meet their obligations,” Kathy says. “The funds they’re getting now have dramatically improved their credit outlook.” Munis can offer yields in line with the highest-rated corporate bonds but often with significantly less credit risk.

As with any remedy for what ails you, it’s important not to go too far. But a little care and attention can help get your portfolio back on track and in position to potentially weather whatever impacts ultimately result from the COVID-19 pandemic.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

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Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when a nonretirement account is rebalanced, taxable events may be created that may affect your tax liability.

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Risks of the REITs are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and credit worthiness of the issuer.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

A bond ladder, depending on the types and amount of securities within the ladder, may not ensure adequate diversification of your investment portfolio. This potential lack of diversification may result in heightened volatility of the value of your portfolio. You must perform your own evaluation of whether a bond ladder and the securities held within it are consistent with your investment objective, risk tolerance, and financial circumstances.

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