Investing During the COVID-19 Pandemic | What Financial Experts Are Saying

Investing During the COVID-19 Pandemic | What Financial Experts Are Saying

To say that the COVID-19 pandemic has slammed the brakes on the worldwide economy might be the understatement of the year. Nations around the world are dealing with serious retractions to their economies along with record unemployment as more and more people are being placed under stay-at-home orders.

The stock market has been jumping all over the place as well, with wild swings one way or the next depending on what the news of the day has to offer. Thankfully though, as more and more states in the US begin rolling out reopening plans, the economy is set to recover.

This has created a tremendous amount of opportunity for those that want to invest during and after the coronavirus pandemic – but there’s a lot of risk and uncertainty to navigate, too.

That’s why we have put together these tips and tricks below.

Build your emergency fund first.

illustration of a man riding a piggy bank and running from coronavirus

Before you dig into any COVID-19 related investments, you’ll want to make sure that your emergency fund is fully stocked and ready to roll.

As a general rule, everyone should strive to save three months of their living expenses before they start to do any investing. Some experts even recommend putting aside between six and twelve months of living expenses in savings if you have an opportunity to do so.

The COVID-19 pandemic may be a once in a lifetime kind of occurrence, but economic ups and downs are not at all uncommon. You’ll want to protect yourself, your financial future, and your loved ones with the security that an emergency savings account brings to the table no matter what.

Investing for the short or long term?

It’s critically important that you decide whether or not you are looking to purchase long-term investments (like stocks and securities), which may be available at record low prices due to the impact of the virus on the global economy, or if you’re looking to swing trade more volatile stocks that bounce around in price.

There is a world of difference between investing in the short-term versus investing in five-year, 10- year, 15-year or even 20-year funds. The tactics and strategies that you deploy while investing during the COVID-19 pandemic are going to be significantly different depending on the timeframe of your investment.

That said, it’s vitally important to be crystal-clear about your investment goals before you jump into the stock market.  

What kind of risk are you comfortable with?

So, after you have built up a sizeable emergency fund, carefully considered your financial goals and decided whether short-term or long-term opportunities are more your speed, it is time to think about risk.

Every investment in the stock market poses a certain amount of risk, and that risk is essentially this: you may not get your money back. So, if the money you are investing happens to be the first money you have saved in years, well, you might want to avoid riskier investments.

Try paper trading to test your strategies.

Of course, your risk tolerance is also going to be heavily influenced by many factors. Those with a lot of experience investing are going to have a better feel for the swings of the market, whereas rookies may want to be a little hesitant and do some research before buying and selling

This is the perfect time to read up on different investment strategies. Try sites like the Motley Fool or CNBC to get some basic knowledge. Then, you should figure out which stocks or investments are right for you. It might be even wise to do some mock paper trading before you put actual money down, just to see how your investment would have hypothetically done over a month or so.

Most well-renowned brokerages are offering 100% free paper trading platforms. This allows you to test strategies without risking a penny.

Of course, if you paper trade too long, you may miss out on a lot of the real opportunities that are present in the COVID-19 market right now, so you want to strike the right balance. In the end, only you will know for sure if an investment is too risky for you or not.

What’s your investing warchest look like?

Believe it or not, you don’t necessarily need a mountain of money to begin investing. Plenty of folks have been able to make quite a bit of money by investing anywhere between $20 and $50 a week. Some have been able to build up investment nest eggs with even less than that. That being said, the more money you can invest, the better off your returns are going to be and the more leverage you are going to have in the market.

The secret to success with investing is putting as much of your capital into the market as you can afford and allowing time to compound your returns. Of course, an investor with $10,000 is going to do better with “breakout wins” in the stock market versus an investor with only $1,000. This is just math, but you can always re-invest your “wins” into even bigger wins.

At the end of the day, there are a lot of investment opportunities available to pick and choose from that you can jump onboard without a lot of capital in your warchest. Seek out investment opportunities that let you maximize the money you do have available, and you’ll be able to snowball win after win into bigger and more lucrative investments in a hurry!

Consider buying the dip – but beware of volatility.

As far as COVID-19 investing goes, it’s important to have a look around at what successful investors are doing to try and emulate their strategies. This way you can hitch your wagon to some of their big wins.

For example, when the average person sees that the stock market tumbled more than 34% since the end of February—after going off like a bottle rocket for several years—they want to get out swiftly and cut their losses. However, experienced investors are keen to “buy the dip.” This means that they buy a stock at a discount due to a wider market selloff. Many of the most respected investors are now actively buying the dip. In fact, more than 47% of all “high net worth” investors are reporting that they expect to maintain or increase the amount of money they invest in the markets in the next six months.

Commit to the long haul

Sure, there are plenty of investors out there (really successful investors, at that) that are a little bit nervous about the prospects of the economy roaring back quickly.

However, most understand the fundamental importance of “buying and holding” – especially when you are in it for the long haul – and they aren’t panic selling the way that less experienced investors might.

Of course, you also have some wildly successful investors that aren’t looking at the current economic downturn as a nightmare, but instead as a once in a lifetime opportunity. Yes, some of the world’s biggest fortunes have been built in economic downturns like this one.

Fortunes are made during a crisis.

Betting on the long-term prospects of the market is always a good idea (on average stocks only go up the longer that you hold them), and that’s a big part of why we see a majority of famous investors pumping more money into the market. They have saved and saved and saved for this moment.

Now, if you are considering jumping in with both feet, it is important to remember that they have the money to absorb the risk. What about you? There is an enormous amount of volatility right now and that means many investments are unpredictable. And this level of volatility will likely hold until a vaccine is found for COVID-19.

Be smart and do your research.

But if you have the risk tolerance for it – and have the ability to take emotion out of your investments as much as possible – there’s a lot of opportunities out there to create a solid financial future.

Be smart, be strategic, and do your research and due diligence before you jump right in. But if history is any indication, a lot of fortunes are going to be made in the markets because of the COVID-19 pandemic – and there’s no reason that you can’t capitalize on these investment opportunities, too.