For many, the coronavirus has brought about emotional, physical, and financial insecurity. This leaves many wondering if there is any kind of smart investing strategy to use during a pandemic. The answer is a loud “Yes!”
Whether you have a limited amount of resources to invest (or reinvest), or need additional revenue streams to cover unexpected expenses, we’ve got five of the best tips to help you weather the storm.
1. Invest in What You Can Afford
(and what you can afford to lose)
If there is any silver lining to be found during this entire pandemic, it’s that some companies have reduced their stock prices, which means you’ll be able to purchase them at a price you couldn’t have managed three months ago. If you’re risk-averse, you’ll want to invest not only in the companies you can now afford, but in those that will be around after the COVID wave passes.
In a recent interview with the Business Insider, Aswath Damodaran said that the latter is a much riskier strategy.
“You’re buying stocks that are distressed, potentially could go under, but if they turn around, these could be the companies that pay off tenfold, twentyfold,” he said. “There, you’d include some of the more troubled airlines, Delta, American, United. There is a chance they will not make it. With a payoff, you get a big upside.” As the Professor of Finance at the Stern School of Business, Damodaran’s advice holds considerable gravitas.
2. Diversify Your Portfolio
This is where having a financial professional on speed dial becomes infinitely useful. What you decide to invest in will depend on a number of factors, including age, salary and risk assessment.
“If you are younger, you’re gonna wanna put it in more equities. If you are a little more mature, you’re gonna wanna have less equities, more bonds,” Sallie Krawcheck, CEO of investing platform Ellevest, told Business Insider. “And I know, again, I know, it’s not the advice anybody thinks that they should be receiving ’cause there’s this desire to do something. Just keep it boring. Find your excitement elsewhere, please.”
Jeet Dhillon agrees. As VP and portfolio manager for the TD Wealth Private Investment Counsel, Dhillon told MoneySense.ca that “diversification is important, because certain sectors are more impacted, such as travel or oil … It can help to talk to a professional who can help you look at how your portfolio is positioned in this downturn.”
3. Pay Down Your Expenses
As part of the stimulus bill, people can now borrow from their 401K without penalty. This means you can chip away at your growing expenses and pay down some serious debt. Krawcheck recommends paying off credit cards, which will have positive ripple effects down the road and improve your credit score once the pandemic ends.
Damodaram concurred. “This is not the time to be playing games, ’cause if you survive, you will have time to build your nest egg back. It is a time where you gotta get your priorities straight.”
4. Do Nothing (sort of)
With all of this financial advice floating around, you may be tempted to leap into a full-on investment strategy. Krawcheck implores people to pump the brakes during the current climate.
“The worst advice is telling someone to do something,” she said. “Now is not the time to buy or sell, it’s simply time to stay the course if you’re able, and keep doing the things you usually do. Stopping now or changing your strategy could put your earnings at risk.”
5. Talk to a Professional
Whether you’re looking at stocks, bonds, CDs or paying down your debt, talk to a money professional who will advocate on behalf of your best interests. Pam Krueger, an investor advocate, co-host of PBS’ Moneytrack, and founder of the financial adviser referral service Wealthramp.com, told Forbes that she surveyed 100 advisors and asked how many of their clients will still be able to retire when they planned, despite the pandemic.
“Across the board, three out of four of their clients will retire as planned,” Krueger said. “And those who do need to adjust their retirement plans are only postponing their retirement date by one to two years… that’s a testament to having solid financial planning all those years.”
The fact is, everyone’s portfolio has fallen. The trick is not to panic; you’ll lose money if you liquidate, and the best investment decisions are made not from a knee-jerk reaction but from staying the course and waiting it out. Investing is a long game, and those who make well-informed decisions — even if that means making no decision at all — are the best-positioned to succeed when the economy rises again.