Is Now a Good Time to Invest?By Lee Korn | May 21, 2020
It’s no secret that the stock market has had a wild ride over the last couple of months as the coronavirus pandemic runs its course. Despite the economic slowdown, our country is gradually moving in the right direction in terms of recovery. Dozens of states are moving forward with phased reopenings, and many economists are forecasting significant economic upticks in Q3 and Q4 of this year, according to a recent National Association for Business Economics survey.
This all begs one obvious question—aside from your regular investment plan, is now a good time to invest even more? Market downturns are supposed to be an optimal time to shore up your portfolio, but there are no blanket rules. For some, a recession is an ideal time to dial up their investments; for others, not so much. Here are some important factors to consider.
Investing Is Often Advised for Long-Term Investors
The first thing to consider is how far out you are from retirement. If you have a longer horizon, investing during this time will likely lay the foundation for growth over the long term because you have a powerful weapon on your side—time. As the old saying goes, time in the market is more important than timing the market. By staying invested during bear markets, you’re more likely to come out stronger when things eventually bounce back.
What does this look like in practice? It means continuing to take advantage of something known as dollar cost averaging. It’s a simple strategy that requires you to steadily and consistently invest the same amount over a long stretch of time. If, for example, a portion of every paycheck is automatically invested in a 401(k), whether the market is up or down, you’re leveraging dollar cost averaging. It makes sense because during periodic market downturns, you have the opportunity to take advantage of lower stock prices.
For long-term investors, now is the time to stick to your investment plan—and potentially invest more, if you’re able. Volatility goes hand in hand with investing, and it can be nerve-racking, but taking the long view is the best way to set yourself up for success.
Rethink Your Investing Plan If You Fall into One of These Categories
Deciding whether or not to invest right now is a personal decision that’s unique to each investor. For some, it may be wiser to hold off. Consider scaling back if any of the following describe your current situation:
- Your job is threatened. Again, it’s all about income. Do you work in a sector that’s been hit hard by the coronavirus? With the unemployment rate hovering at a devastating 14.7%, many Americans are rightfully concerned about the future. If this is ringing true for you, investing excess cash could mean robbing yourself of a financial safety net.
- If you find yourself out of work, which we’re hoping doesn’t happen, do you have enough cash savings to stay afloat for a while? Investing now and reaping potential returns in the future isn’t worth it if it means struggling to make ends meet today. Aim to build up at least three to six months’ worth of expenses in a liquid savings account.
- You’re about to retire. Short-term market turbulence can be very difficult to stomach for folks who are coming up on retirement (or are already retired). While none of us can predict the future, history shows that it’s taken about three years for stocks to fully recover from past bear markets. If you’re close to retirement and are counting on that money sooner rather than later, investing heavily right now probably isn’t the best idea.
- The inherent risk makes you uneasy. When it comes to investing, volatility is simply part of the ride. With that being said, many continue to thrive during periodic market downturns. These investors all have one thing in common: they don’t react emotionally to inevitable ups and downs. Instead, they stay the course.
- If you don’t have a particularly strong appetite for risk, you may find it difficult to watch the market continue to bounce around—especially as your account balances go up and down right along with it. We’re all wired differently. If dialing up your investments during this time creates unnecessary stress, consider sticking to your original investment plan and leave it at that.
At Opal Wealth Advisors, we recognize that no two investors are alike. Every one of us has financial goals that are shaped by our individual values and desires. This is precisely why every investor needs their own personalized roadmap. Feel free to talk to us if you’re weighing the pros and cons of investing more heavily during this time.
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