There has been significant market volatility. Due to COVID-19 or the coronavirus, countries have shut their borders, unemployment has skyrocketed, and the markets have dropped by more than 30% in the last month. So what can you do during these turbulent times?
Stop looking at your investment accounts
Yes, stop it! I know you have various apps and online brokerage accounts that will let you look at your balances 24/7. But don’t. Looking at these accounts may only cause more stress and can lead to common investing mistakes like selling at the bottom.
Let’s take a look at a time frame that many remember, the 2008 market crash. Let’s say you were one of the many investors that sold prematurely under pressure and never reentered the market. By doing so, you would have missed out on significant gains as the Dow Jones has risen over 71% since then. Don’t be one of them.
The chart above shows that Dow Jones has increased over the last 12 years.1 What does this mean for you? Markets will fluctuate over time and sometimes tuning out the noise could be the best thing for your portfolio.
However, be sure not to invest money that you need to survive over the next 5 years. Instead, find ways in your budget to build an emergency fund first and invest any leftover surpluses.
If your spending plan allows, keep investing
If you have a steady income, keep investing spare amounts into employer-sponsored 401(k)s and 403(b)s. These can be great ways to reduce your tax liability and you can possibly obtain “free money” via an employer match. If you qualify, consider investing in a Roth IRA, as these contributions can grow tax-free. Due to the pandemic, the IRS has extended the 2019 tax deadline to July 15, 2020, which has also extended 2019 IRA, Roth IRA, and HSA contributions as well. If possible, do this first before making 2020 contributions to these accounts.
You can also take advantage of dollar-cost averaging, meaning that you invest the same amount of money regardless of market fluctuations. If markets depreciate, you still contribute the same amount but buy more shares.
Keep calm, but adjust your plan as needed
If you’re investing for a long-term goal like retirement, refrain from touching those accounts. Yet, if you have short-term investing goals, consider making necessary adjustments. These adjustments could be temporarily shifting funds into less risky assets like cash or fixed income, lowering contribution amounts, or delaying major purchases like cars.
We understand that you might be struggling financially during this time. If so, keep making the minimum payments on your debts and talk to your lender. You’d be surprised how compassionate lenders and creditors can be during times of crisis. They might be able to help you by lowering your interest or even temporarily pausing payments for more dire situations.
Take care of yourself
Lastly, be sure to take care of yourself. This can mean many things like exercising more, eating well, spending time with loved ones, and practicing gratitude. Use this time to learn new skills, be grateful for what you have, and be a little more forgiving. This time isn’t easy as many people are experiencing hardships related to health and work.
Decompress during this time by reconnecting with old friends, getting close to your family, or by watching a funny movie. Those are all good investments.
These times might seem scary, but this will pass! In the meantime, keep thinking long-term, be optimistic, and indulge in some occasional self-care!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal.
No strategy assures success or protects against loss.
All performance referenced is historical and is no guarantee of future results.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors All indices are unmanaged and may not be invested into directly.
Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.