Should You Invest During COVID 19 – What To Consider. While the market has been rising since the beginning of spring, many investors are still on the fence. The novel coronavirus continues to spread, and many communities and companies are partially shut down. It’s easy to see why market optimism can go sideways so quickly under these conditions.
If you are new to all of this, you may feel like it’s best to sit on the sidelines for now and not invest. Undoubtedly, being aware of the risks that surround you as an investor is smart and healthy. But, all-out fear may stop you from achieving your long-term goals.
Coronavirus or not, market downturns are a fact of life. They’ve been happening and they will continue to happen.
You will undercut your access to growth if your response is to always sit them out. In extreme market climates, the best way to go isn’t to turn away from investing, but to learn to feel comfortable with your strategy and mitigate risk.
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Even when you feel like it is the best time to invest, you cannot afford to ignore diversification. To protect your investment portfolio from volatile storms that can impact the market, you need to diversify.
You will be able to overcome a portion of your losses if you diversify your investment portfolio. Returns generated by one asset can cover the losses of another, underperforming asset.
For Instance, let’s say you decided to invest in equities, FD, and gold during the ongoing coronavirus pandemic. Due to market volatility, your equity investments may not do so well. However, the price of gold tends to rise due to inflation, you can consider gold as the best metal to invest in during times of economic uncertainty. As a result, the returns on your FD and gold would limit your overall losses.
In the current market, your portfolio will do better if you include small saving schemes, FDs, or gold as well as equities than if you decide to go with nothing but equities. However, be sure not to over-diversify. Select the asset classes as per your liquidity requirements, risk tolerance, and financial goals.
History has shown that small companies can’t power through recessions as well as large-caps (the largest companies) can. When it comes to financial communities as well as their customers, big companies have great track records.
The biggest companies have ample access to credit, solid balance sheets, and diversified lines of business. These are relatively reliable, even though they don’t always seem attractive.
Many large companies pay dividends. When there is trouble in the market, you can have a comforting source of returns.
It may be best to go for an ETF or S&P 500 index fund instead of investing in large businesses individually. Just one S&P 500 index fund share allows you to own a slice of all of them. This allows you to diversify quickly and easily.
When the market becomes extremely volatile, it can be counter-productive to invest funds in high-risk instruments and live on high debt at the same time.
Currently, for many of us, debt repayments have become very challenging. Many people have lost their income streams due to the ongoing Covid-19 crisis. The values of multiple investment classes have gone negative, on top of that.
To make sure they’ll be able to repay their equated monthly installments, many heavily indebted investors have to sell off their investments at heavy losses.
Make sure to factor in your debt when you are evaluating your ability to take investment risk. Factors such as insurance cover, debt situation, as well as your income determine your investment risk tolerance.
Your risk appetite is another story. Factors such as your age and level of expertise determine your willingness to take investment risk. It is important to keep in mind that your risk appetite is not the same as your risk tolerance.
When you look at it logically, what’s currently happening in the market doesn’t matter as long as you don’t need to pull out your investments now. Even though this is much harder to believe than it is to say, it is still best to focus on the long term.
This fact may convince you: After inflation, the S&P 500 grows about 7% annually. You’ll have to have to ride out that storm if you want to get that 7% return. It’s hard to reach that 7% if you’re in the habit of stepping in and out of investments often.
There is a good reason why this happens. When the market dips enough to cause a panic, most novice investors sell. When the market recovers or approaches recovery, they buyback.
What they are doing is essentially buying high and selling low, which never pays. But, if you have a good understanding of market psychology and risk management, the math will work in your favor. To protect your investments from your own fears and anxiety, you need to educate yourself on these matters.
Besides, you won’t have to worry about when the market will recover if you stay invested. You simply need to be patient and wait for it to happen.
Investing in installments is another ingredient for successful long term investing. To reduce your investment risk and get the benefit of dollar-cost-averaging at the same time, invest through installments instead of lump-sum investments. Mutual fund SIPs (Systematic Investment Plans) are a solid option.
To lower your risk of mistiming a purchase, it may be best to take a periodic, but consistent approach to investing. Let’s say you can budget $12,000 annually for your investment account. You will be trading in various market conditions if you invest $1,000 monthly for one year.
Sometimes you’ll buy when share prices are high, other times when they are lower. If you do this, market extremes shouldn’t have a big effect on your costs since those highs and lows should balance each other out.
When the market is down, you may get lucky if you invest all of that money at once. But this is a double-edged sword. You could end up buying at a peak, right before a huge dip. It’s best to commit to a monthly buy and play it safe. Should You Invest During COVID 19? now we can conclude as below.
If you play your cards rights, the ongoing coronavirus pandemic can be a great time to invest. However, in unprecedented times such as these, it is important to stay well-informed as an investor. By taking the time to research the market and learn about your options, you can avoid unnecessary losses as well as panic-stricken financial decisions.
Should You Invest During COVID 19 – What To Consider