Over the past 2 weeks, global stock markets have taken a battering. Many people would understandably be getting very concerned seeing their super accounts, stock investments etc go down. And some people would have panic sold. But is now a good time to stop investing? Is it a good time to start investing? In this post I’m going to walk you through some of potential future scenarios and what effect this will have on your money.
An Ideal Investing Strategy
So if you were the perfect investor, you would have sold your stocks at the top of the market a few weeks ago. You would have kept your funds in cash or gold (considered to be a safe haven asset), and then you would buy back your stocks at the bottom of the market.
The problem with this scenario is that it’s almost impossible to get the timing right. Sure, some people will have nailed it. But they would have done so based on luck rather than skill.
The opportunity to execute this strategy has passed. So it’s time to look forward:
The worst thing you can do
People lost money when they buy stocks high and sell them low. It seems obvious, but people keep doing it again and again. If you sell your investment after a crash you’re not giving yourself a chance to recover.
So my best advice here is to not panic. Don’t sell out of Raiz, Spaceship, Commsec Pocket etc. Now is absolutely the worst time to sell.
Will stocks recover from the Coronavirus
If you’re invested in an index ETFs (either directly or through an app like Raiz) or a fund like Spaceship, the good news is that based on history your stocks will recover. After every crash indexes has recovered and gone on to post new highs. I can’t see any reason why that wouldn’t happen again.
Now if you’ve invested in individual stocks and don’t hold a diversified portfolio, then things could be a little different. The recent stock market crash was caused by fears around Coronavirus impacting the economy and a oil dispute between Russia and Saudi Arabia. Some individual companies might not get through this. For example, if you’re holding stocks in a single oil company, that company could fail. That’s a very real risk. If that happens you will lose money.
But hopefully you are holding a diversified portfolio that will absorb any single company failing.
Should I invest now?
From a price perspective, it’s obviously a lot cheaper to buy stocks now than it was two weeks ago. So if you have cash on hand now might be a good time to invest. A big disclaimer though – I have no idea when the bottom will be in. It might be this week, it might be in a few months. Even the top investment advisors won’t be able to tell you that. So your best strategy is Dollar Cost Averaging.
Buy smaller amounts at regular intervals. That way you’ll average into a position. Use apps like Raiz and Spaceship that let you invest with as little as $5 at a time and your funds will get invested into a diversified portfolio of stocks and bonds.
Here are the dot points:
- Don’t panic sell – this is how fools lose their money.
- Invest using Dollar Cost Averaging – now is not the time to make risky big bet investments. Invest small amounts at regular intervals to maximise your long term gains.
- Invest in a diverse portfolio – individual companies could go bankrupt due to a failing economy. Investing in a index ETF will reduce the risk.
- Add to your emergency fund – Now’s the time to add cash to your emergency fund just in case there are unexpected expenses in the future. Better to dip into this than into your investments.