Daily life, and life as a whole, has certainly changed for many, if not for all of us, following the COVID-19 outbreak. It has brought a sense of uneasiness and urgency to make sure all our ducks are in a row financially.
The volatility rollercoaster has pushed people to the edge of their seats and has people concerned about their financial future. There’s a sense of fear associated with investing today. People fear the market will get worse, they are concerned whether they should be investing at all or if they should stock pile all their cash.
You can plan for volatility and around volatility, but one strategy for building wealth that has stood the test of time is dollar cost averaging. The challenge with the stock market is that it’s an open system and none of us has the crystal ball to know when it’ll peak or bottom out. Too often people try to time the market which means they have to be right twice and chances of that are slim. It’s critical to be right when to sell and when to buy.
How much risk are you willing to take? This is a question you should frequently ask yourself. Make sure you are willing to see some money potentially go down before it goes up. What you should be doing with your money depends on your individual tolerance for volatility and your goals. If you aren’t willing to see that volatility, perhaps the S&P 500 isn’t the place to be. If you’re wavering about the market, decide whether you’ll need the money in the short or long term. If you are looking at it long term, recent volatility may actually create a buying opportunity.
Going against the grain of the standard S&P, there are a lot of unique things going on in the economy right now from high stock market volatility to rapid changes in the labor market, to massive stimulus packages being disbursed. Governments around the world are trying to keep economies going while they have to deal with an enemy that can’t be seen.
This outbreak and it’s economical repercussions could serve as a reminder that having a diverse portfolio means more than just stocks and bonds. It means having different assets in different asset classes. If you are retired it could mean more assets with guarantees associated with them for principal protection or income. It could also mean looking at more physical assets and building more into your portfolio with hedges to limit volatility. One should always be looking at how you can diversify. It doesn’t necessarily improve our returns in any single year, but it can cushion the blows when things go south.
Don’t put all your eggs in one basket, test your strategies, understand the risk, and follow a system. It’s when we don’t follow the rules or our system that we tend to get ourselves in trouble when emotions take over.
If you have questions about how you can invest during a pandemic, schedule a virtual meeting with one of our advisors.