“There is never a bad time to start a GOOD business ” – Gary Vaynerchuk
As a result of the pandemic, you may be asking if now is a good time for investments with U.S and International stocks undergoing rapid and significant changes. Over the last couple of months, the markets have gone from some of the highest closing numbers recorded to lows that rival the depression-era levels of the late ’20s and ’30s. With the markets experiencing such levels of flux, it is easy to assume that now could be the worst time to invest. However, as with any recession, there are still significant opportunities to invest cash in the markets provided you are confident you will not need to see a return on your investment right away.
The truth is, volatility in the markets can be a scary thing, especially if you are heavily invested, but such instability is not unusual. This is not the first time the market has seen massive swings over a short time. Across many industries in the market, stock prices still remain quite low, so now may be a good time to invest. Below are a few things you should consider before you make an investment decision.
1) Make sure you have a stable emergency fund
Investments in the market is a smart thing to do, provided you are using spare cash to do so. Spare cash is that money that you aren’t using or do not need to use right now to maintain your household budget. It should also be cash that you do not expect to see a return on in the near term. Experts say a good rule of thing is only to invest money that you don’t expect to need access to for the next ten years. This applies even when the market is strong.
This is excellent advice, except it comes with a significant shortcoming. Sometimes, potential investors do not realize they will need the money they invest until its too late, and the cash is already tied up in the market. Rather than take that risk, make sure your emergency fund is secure. Take the time to assess what your essential living expenses are and make sure you have enough cash in the bank to cover three months of those expenses at a bare minimum. Safer estimates suggest being able to cover between six and nine months. This is especially true if you are concerned that the pandemic could impact your financial stability.
2) Assess your existing portfolio
Right now, it happens to be an excellent time for investments if you have the cash and have taken the time to determine your emergency savings are stable and securely funded. However, before you load up on newly affordable stocks, take a moment to figure out which ones you already have. If there is a specific segment of the market you are already heavily invested in, it may be beneficial to look to other areas. This will help to diversify your investment portfolio.
Diversifying your investments is important for a variety of reasons. Most notable among those being that it helps to reduce financial risk. By having a variety of investments placed across different industries and assets, you are putting all of your proverbial eggs in one basket. As a result, you are minimizing the risk of your investments, dropping considerably in value over the life of your investment.
3) Use caution with hard-hit industries
Stocks can be risky investments in general, even in the best of financial markets. In today’s’ market, due to the coronavirus pandemic, there are specific industries that are feeling the negative economic impact of things like stay at home orders, social distancing, and travel restrictions. This includes industries such as airlines, cruise lines, hotels, and pretty much everything else travel related. Other businesses that are feeling substantial impacts are restaurants and retail businesses that have been deemed non-essential. Due to operating restrictions, these businesses have been closed since mid-March.
On the one hand, you currently have the opportunity to buy some of these stocks at a significant discount. Take Carnival Cruise Lines, for example. On January 2, 2020, Carnival closed for $48.55 per share. At the close of business five months later, in May, they closed for $12.43. Another example would be American Airlines who in January closed at $29 per share and five months later closed for $10.64. At first glance, it would seem like a great time to get in on the ground floor with these particular companies. However, it is valuable to keep in mind that there is no clear indicator of what recovery will look like for these industries. So, before you make an investment based on a $30 per share savings, be sure to do your research and focus on companies that have solid financial standings despite the current industry crisis.
4) Plan for your investments to grow over time
Again, the money you invest in the market, whether it be during a period of volatility such as the current coronavirus driven market or during a stable and growing market, should be money you do not need to see a quick return on. Investing is an excellent way to grown wealth, but you need to plan for it to be a process. There is no perfect amount to invest or an ideal time to start. While it is true that investing during a pandemic can be particularly daunting, it is not something you should ignore the potential of. If you are investing money that you can afford to allow to grow over time the more, you will get out of your investment.
If you are investing for enjoyment or because now seems like the perfect time to experiment with the market, be sure to know your risk. Also, it is critical to make sure your finances are in order and have a clear direction regarding what your goals are when it comes to investing. If you are looking to get rich quick than investing, especially during a pandemic is likely not the correct direction for you. Also, if you are investing to secure a nest egg for retirement, you should be using retirement accounts such as 401(k) accounts or a Roth IRA. The market is often far too risky to use as a sole means of securing retirement funds. A great investor by the name of Warren Buffet once said, “you do not need to do extraordinary things to get extraordinary results.” According to Mr. Buffet, the best way to make money in the market is to buy shares of great businesses at a reasonable price (as you would see now in the wake of the coronavirus related market crash) and hold on to the shares for as long as the business remains successful. You will indeed experience some market volatility over time, but you will also see excellent returns on your investment.
If, based on the above, you feel now is a great time to consider investing in the market, you are likely not alone. Stock prices are at the lowest they have been in nearly one hundred years. If you are considering investments, work with a team of professionals at Venture North Group who can help you make reliable decisions regarding the companies you are considering buying into.
If you are a company that is considering opening up liquid capital through the sale of stock, Venture North Group can help you with that as well. Most importantly, do your research and be patient with your investment strategy. A solid return on investment will not come immediately, especially in a bear market such as this.