The global economy is experiencing massive shockwaves due to the continuing global coronavirus pandemic. Markets are at record levels of volatility, seeing historic swings in both directions on a near-daily basis. In the midst of the crisis, pundits and talking heads on television are switching tunes like a DJ quickly rotating through songs. One day they believe the bottom is in, while the next they are screaming for a repeat of the Great Depression.
As all of this occurs investors are scared and while they should be nervous, it’s also good to have a plan of action for when catastrophic market events occur. A frequent question I receive is, how should the average retail investor assess risk and navigate these rough seas?
First, it is important to remember that we have been here before. While the reason for the economic crisis is different this time, recessions, depressions and corrections are a part of natural market cycles. To that end, the first thing to remember is never to panic or make decisions out of fear.
The stock market has always recovered in the past – in fact, there has never been a time in the history of the market that stocks have been a bad investment over a 10 year period. Equities have yielded at least a 7% gain over that time frame at every point since inception.
To state it plainly – dips have always been for buying on stocks if you have a long time horizon as an investor. Even the Great Depression was a buying opportunity for savvy investors.
With that in mind, here are some practical tips for handling your portfolio and tightening up your risk management during this trying time.
1. Keep investing for retirement
Anyone who is not yet retired should maintain the same strategy that they had before the crisis, passively investing and dollar-cost averaging into the stock market in a tax-deferred fund like a 401K or IRA.
While it is scary to see your net worth dropping, your retirement fund is focused on growing your capital over many decades….