HNE Staff The COVID-19 pandemic has killed millions of people, displaced millions of employees, closed businesses, and scared the world into imposing a new normal. These factors caused the stock market to be volatile right now, but you can still find a few ways to navigate it. There are always opportunities to take advantage of. It helps to know how to manage your investment money during this extraordinary time.
Here are the 10 Tips on Investing in Stock Market Amid the Pandemic:
1. Assess your risk tolerance.
Learn to look deeper into how much risk you can afford to take. It is the bottom line that needs to be considered before making any rash investment decisions. Use your risk tolerance to determine how much to invest and how much fixed income you want to get. Discuss this with your financial advisor, especially if you are still unfamiliar with the stock market.
2. Collect cash.
After evaluating your risk tolerance, it’s time to prepare cash that you can invest if some stocks go down and the prices go low. They will not remain low, so be ready to swoop in while they still are.
You cannot predict what might cause a stock market crash, how long it will take before it recovers, and how much the decline will be. Whatever triggers the crash, use it as an opportunity to buy stocks from established companies at much lower prices.
Get cash from selling some of your stocks before another price drop. Another option is to gather some money from your own savings account or sell your more liquid assets. When the stock market crashes or experiences a significant decline, you’ll have cash ready to invest.
3. Study how the pandemic affects different industries.
The pandemic affects the stock market not because of the people’s economic outlook. It is because of their sentiments as countries try to win against the novel coronavirus. These sentiments lead to market volatility, which worsens due to increased fear and other negative emotions from what people see on the news and social media. The heightened fear controls trading behaviors and causes extreme ups and downs in stock prices.
It helps to understand how the COVID-19 pandemic affects an industry to narrow down your list of companies to invest in. Look for industries that will not be significantly impacted by the new normal. Include industries that are faring well amid the pandemic, such as health care and biotech, and teleconferencing industries.
4. Monitor the companies that caught your investor’s interest.
Choose businesses that are meaningful to you from the industries you have chosen to invest in. Find ones that have a competitive advantage over their competitors. Look for those managed by leaders with integrity and competence. It’s important to choose companies that offer a margin of safety to assure a generous annual return in the next decade or so.
Wait for the price drop in your list of businesses to consider before taking action. Move-in when you see stocks dropping 20 to 40 percent off, for instance.
5. Choose crash-resilient companies.
Don’t put your money in stocks merely because of their attractive “on-sale” prices. Buy them because they can withstand a potential market crash. Good examples would be businesses in high demand during this pandemic. These include grocery shops, postal services, delivery companies, and cleaning supply businesses.
You might also want to consider companies with big names behind them, such as Walmart and Amazon. These retailers can increase their prices to adjust to inflation.
Businesses involved in necessities, such as food, shelter, energy, and more, are also thriving. They will remain so in the years to come.
6. Think about investing in tech stocks.
Technology has played a bigger role than usual in maintaining a connection with other people. The pandemic caused a sharp rise in demand in services and products offered by Zoom Video Communications, Slack Technologies, and Microsoft. Last year, other big tech winners included Cloudflare Inc., Roku Inc., Nvidia Corp., and Zscaler Inc., among others.
7. Consider investing in cryptocurrencies.
Many people may still be unable to grasp what cryptocurrencies are. Whatever your opinions are about them, you can’t argue that they are performing much better than traditional stocks during the pandemic. Bitcoins are volatile, but they are doing relatively well compared to the stock market when the COVID-19 outbreak started.
8. Invest in stages.
With the US’s ongoing vaccine rollout, optimism and spending might pick up with people raring to go out. They’ve been more or less restricted with their movements for months. Industries have risen, like biotech, tech, and e-commerce, and closed industries are slowly reopening. The Federal Reserve has reduced interest rates to stimulate spending.
However, these factors can’t fully predict the market’s movement in the next few months. The investors might still change their minds, which adds to the risk of investing. You might reduce the risk by investing weekly or every 10 days or computing the dollar-cost average.
Considering how volatile the market is, this is not the time to go all in. Since you might not be able to buy all the stocks at their low prices at once, do it steadily. Set a schedule to do the buying and follow it, but always monitor the latest news that might affect the stocks.
9. Don’t make hasty decisions.
It is only natural to notice fluctuations in the stock market, but don’t react rashly to these changes. Be cautious but patient and calm, especially if critical funds are involved, such as your retirement savings.
10. Keep up with the news.
Read up on the financial market from reliable sources more than ever. Visit the Wall Street Journal or the Economist daily. If you know some, talk to financial advisors and long-time investors. Listen to podcasts about investing, the financial market, and economic discussions.
Hold on to your emergency fund and cash, but hone your skills and improve your resources in searching for the next investment opportunity. Always think long-term when you choose the assets to invest in. Stay calm, patient, and well-informed.
Be prepared to help reduce the negative impact of a financial crisis. Read the 10 biggest financial lessons from Covid-19 and equip yourself to handle the unpredictability of the future.
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