Investing in the Wake of COVID-19
Extraordinary Times, Extraordinary Market
A look back at the nearly 34% plunge of the S&P 500 between Feb 19 record closing to the extraordinary low recorded on March 23 and there’s a good chance that the erratic market resulting from the COVID-19 pandemic has left you questioning your investment strategy.
In the sudden downturn, many of us saw portfolio values sinking thanks to sell-offs in early-mid March. But now that the sudden onset of this downturn has passed, it’s time to thoughtfully reevaluate your investment plans in the wake of COVID-19.
Before making plans to make any fresh investments, take heed of the immortal words on the front of the Hitchhiker’s Guide to the Galaxy – don’t panic. One of the biggest mistakes you can make at a time like this is to let your emotions get the best of you, leading you to further losses.
There’s no doubt that we all want to take some action to counter the new bear market. But at times like this, remaining calm and focused on long-term investment goals can help you come out in the black.
Evaluate the Field
Now that you have your head in the right place, you can begin to reevaluate the investment field as it stands. Technology and pharmaceutical stocks are helping the market right now which means major industries outside of that are struggling to remain profitable as consumers face unemployment and shelter in place stalls economic activity. Consider sectors that benefit as the market opens back up (resorts, amusement parks) as you make plans for a near-term investment.
Your first plan of action should include investments in businesses that are set to grow (or at least remain stable) during this downturn. A prime example is online retailers, whose services are being used now more than ever as more folks are opting to order essentials online rather than going to a store. Another worthwhile example is meal-kit delivery services, whose stock has shot up in the wake of the COVID-19 crisis due to a consumer preference for delivered make-at-home meal kits.
At the same time, remember that volatility is the dish of the day right now. Any investment you choose to make might be wiped out suddenly by a change in circumstances. Choosing to minimize your investments at this time wouldn’t be a bad idea, especially if you only have limited capital to work with.
Remember Keys to Bear Market Investing
If you’ve been in the investment game for the past decade, then you likely picked up some experience during the last major bear market. Now would be a good time to put those learned lessons into practice. For example, while the uncertainty about COVID-19 continues, you should avoid trying to time the market. Instead, if you choose to invest, do so at a set time that includes a pre-established exit strategy.
Also, if you’re feeling a little jittery about the stock market, now might be a good time to invest in bonds. Generally speaking, they are less volatile and can help you establish a more consistent income during these trying times. Municipal bonds, in particular, can be productive at this time, given that their interest is often exempt from state and federal taxes.
The V-Shaped or W-Shaped Recovery
Analysts have tracked rebounds over the last several decades and report that the research suggests severe economic downturns are followed by sharp surges - resulting in a V-shaped recovery. Other analysts say a double-dip or W-shaped recovery is possible.
It isn’t clear how long it will take to get back to normal status. A rebound of the virus could deliver another market setback as the country slowly reopens businesses making stocks vulnerable again. No matter the letter shape we experience, investors should proceed cautiously.
So, for now, the best actions you can take when investing in the wake of COVID-19 are to keep a level head and focus on opportunities amid the recovery. At Bradford Financial Center we recommend talking with a financial advisor before you make any investment moves.
Contact us to discuss your concerns, questions, and thoughts on investing.
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