At the time of this writing, the stock market is gripped with uncertainty in the wake of the coronavirus pandemic happening in most parts of the globe. Although the majority of stocks are falling over the past weeks due to slow business and fluctuating crude prices, know this: this is not the first time the market crashed, and it definitely will not be the last.
The US stock market has been in the bull markets since 2009 (after the financial crisis of 2008). Now that we are in the bear market, what’s next? We always say that investing and trading is not for the fainthearted. Take this current situation as an opportunity to take a step back and reinforce your investment strategy. Here are some tips in investing amid a pandemic: do’s and don’ts:
Invest only in what you know and maintain a diversified portfolio (bonds, cash, equities – you know the drill). Go for low-cost, passively-managed index funds or exchange-traded funds (ETFs).
We briefly touched on ETF’s and mutual funds in this post. If you have been investing for a while now, make sure you are invested in these assets to balance out your portfolio.
2. Check for red flags
While there is more oscillation that could happen, the dynamic of the current market will spark a new environment for growth-oriented investors.
Consider the company’s nature of business and how the current coronavirus crisis will impact its operations at this time and in the future.
Check and monitor the company’s stock market notices and updated financial reports - these are usually found in the “investor relations” section on a company’s website.
3. Opt for long-term investments
Just because we are in the midst of a crisis, it does not mean all financial goals are out the window. A smart investor knows not to panic when the market is sinking this week or next.
Remember, you are investing in your long-term financial goals.
This is especially crucial at this time since we are still waiting on how the current pandemic crisis will play out in the coming weeks (or months).
Tip: Always have back up cash on hand for emergencies and crises; keep in mind that any money you invest in the market should be locked away for long-term goals.
4. The dollar-cost averaging
The dollar-cost averaging – This strategy means investing a fixed amount regularly into the same investment product over a long-term period.
This allows you to buy more shares when the cost is low, and less when the price is high. For example, you have a $2,000 budget, add $100 to your portfolio every other week and do it in a consistent manner.
Doing so will help you avoid trying to “find the best time to invest” because you are investing regardless of the market condition, and any emotion is off the table. This strategy is what experts recommend when the market is volatile.
1. Panic-buy stocks
While it is tempting to invest in a certain stock after dipping 20%, you must do your due diligence in researching the company’s reports over the last few years (or the past year at least) and its financial stability.
You can also look at the big picture, which can help you decide if you are comfortable investing. Do not invest more than you can afford.
2. Change your investment strategy
Many financial advisors can agree not to deviate from your strategy during unstable times. It is easy to be attracted to investing in stocks at their low prices, but you still need to be confident of these investments even for short-term ones.
This volatility may create a fertile environment for long-term investors, as this post from Market Watch indicated. Let’s say you are relieved from your job because of the pandemic crisis or have just recently retired; you do not want to sell stocks at a low share price during a bear market because you are cash poor.
3. Time the market
“Timing the market” revolves around buying low and selling high shortly after. You can compare this to the shady “get-rich-quick” schemes.
As tempting as it may be to try and anticipate the ups and downs of the market, it is not a good investment practice mainly because the market is highly unpredictable. Long-term approaches far outweigh timing the market.
If you buy and hold, the potential return is higher regardless of the current market volatility.
4. Neglect compound interest
Years from now, you will reap the rewards of compounding returns. Pulling out your investment and missing a few days can diminish your returns.
Sticking to your investment strategy. Take the emotion out of the equation. It is inevitable for companies to have their fair share of price fluctuation.
If you invest consistently during corrections and when markets dipped, your stocks will perform better than those who pulled their investment out during corrections and missed the break-even periods.
Remember: It pays to practice patience and discipline. Invest your time (not just your money) into your portfolio.
In hindsight, times like this prompt investors to make sure that their portfolios are aligned with their goals and at par with their risk tolerance. Volatility is inevitable, so every investor must always be prepared for prolonged declines and to post losses. If you can ride out the bear markets, you have an appetite for risk, and your holdings stand to gain in value for the long term.