We are in the middle of a bear market. And it seems like a hopeless economic situation. But time and again, when recessions have occurred, they did the same thing every single time – they ended.
Right now, the marketplace is in the doldrums. Valuations of different securities are dropping massively, and people are gripped with fear of the unknown. Fear is normal in a situation like this, but it can cloud your judgement and instigate you to make terrible investing decisions.
Managing Your Investments During a Pandemic
The people who typically see their financial futures destroyed in a financial crisis are the ones who completely bailout and exit the stock market. But the people who see the market downturn as an opportunity will continue to build wealth.
Will the stock market drop further? Probably.
Will we witness extreme stock market volatility this year? High probability.
Is this time right for exiting the stock market completely? The answer is no.
If you are afraid of the market, the best thing you could do is make as few decisions as possible until the panic subsides.
However, if you plan to make any drastic decisions with your portfolio, your first step should be to analyze the possible risks and rewards. Your portfolio ideally should have been created factoring in the volatile nature of the markets with the ability to withstand that volatility. In all likelihood, your portfolio is – a good mix of assets. This time is right for rebalancing your portfolio. Rebalancing simply means that you can buy investments when the market goes down and sell them when the market goes up too quickly. This simple act of rebalancing can go a long way and add value to your asset mix.
Currently, the value of stocks has seen a dramatic drop; your net worth is obviously affected negatively. You may want to minimize the risk by selling your investments. But don’t do it. Not yet. The time is not right. Selling your investments due to the fear may be the worst mistake you could make during this time because you would be instantly giving up on the opportunity for massive returns, resulting in short-term losses and missed long-term gains. Tolerating the risk is the key to investing during the pandemic. The market will bounce back, and the more time you stay invested in the market, the better will be your chances of building wealth.
Buy more stocks
The bad news is that the value of your most loved companies’ stocks has dropped massively. The good news is that you can now afford to buy these stocks on sale.
Investing during a pandemic is definitely a frightening thought, but it’s full of opportunities. The market is dropping at a record pace, but we are likely to be in a V-shaped recovery, which means as soon as this crisis ends, things will be back on track.
In a “V-shaped recovery,” the markets go through a steep drop, followed by a brief trough, then a stage of rapid recovery takes over. So, if you buy stocks when their prices drop, the probability of you earning above-average returns in the future increases substantially.
- COVID-19 may be existing with humanity forever. We need to learn to adapt and co-exist with it.
- Don’t sell your investment right now.
- Don’t think of quitting the stock market right now. The stock market will recover. Exiting the market now means incurring expenses such as fees, taxes, missed opportunities, etc. when you decide to return later.
- It is a good time to buy investments – stock prices are low.