A HIGH-RISK, HIGH-REWARD INVESTMENT STRATEGY IN CRISIS
The financial crisis of 2008 and the recession of 2013 are still fresh in the memories of investors. Investors saw their portfolios lose by 30% or more of their values. Instead of making decisions rationally during these severe bear markets, many investors tend to overreact and make matters worse. However, amidst this panic or emotional investing there was a small group of patient, strategic investors who saw the stock market collapse as an opportunity.
With no doubt, investing in a crisis is risky, for the timeline market recovery is undefined. Still, those investors who are determined to invest in the financial crisis may reap outsized good returns during the market recovery.
HOW CRISES AFFECT INVESTORS
Often, investors behave irrationally; impulsive and let their emotions get in the way, especially when the market is experiencing a fall.
TAKING ADVANTAGE OF A CRISIS
While majority of the investors panic as asset prices plunge, those with a cool head and patience are able to see the resulting low prices as a buying opportunity. Buying assets during the market crisis is like buying them on sale.
Profiting and wealth creation from investing in a crisis requires discipline, patience, determination, courage, vision, market research, and, of course, enough funds in hand to make opportunistic purchases.
Historically, when the dust clears, when markets are back to normal or re-witness highs, optimism returns and prices bounce back to where they were.
The bottom line remains, economic crises, recession, financial depression occurs from time to time. Studies tell us that people are bound to panic in such crisis, and they do not act rationally. As a result, those with cool heads, discipline, understanding and determined to accomplish their financial goals earn excess returns when the markets rebound from such events.
With no second thought, in investment, timing is everything and buying too early or too late, can take away potential gains.
TYPES OF STOCKS THAT WILL SURVIVE ECONOMIC COLLAPSE OF COVID-19
Call it instability, uncertainty, or crash, it is one thing that the stock market investors hate the most. Given the world’s current volatile economic state due to novel coronavirus of affairs, investors could not be in a murkier spot.
Stocks of some industries that will do well in spite of any economic crisis or stock market meltdown due to COVID-19 include healthcare, commodities, infrastructure, military equipment, and utilities.
It doesn’t matter if the stock markets are crashing, or how bad the economy is performing. The fact remains, certain pharmaceutical drugs and medical treatments will probably be performed, or purchased, regardless of the market downfall.
This emphasizes why many pharmaceutical companies and healthcare technology companies are considered to be safe industries to invest in.
One of the top-performing investments – commodities is highly fungible item that are in demand always. Commodities, whether they are food, energy or metals, are and will remain an integral part of everyday life.
From repairing the potholes of the roads, to taking the infrastructure of the nation to the next levels, infrastructure stocks always enjoys the top position when it comes to stocks that never goes out of fashion, even in hard times or market crash.
Military-related industries are the Old Faithful and return oriented stocks. Be it troubles with the economy, or risks to the stock market, these stocks are pretty less affected.
Utility industry is that their forward-looking growth is partially undersized. For sure, they are not going to double in size overnight, or they certainly won’t make you rich. But, they do typically pay a solid dividend over the long run.
FINANCIAL LESSONS FROM CORONAVIRUS
• Over the past few months, the global impact of COVID 19, popularly known as the novel coronavirus, on health, work, and economics has been in limelight. With partial and/or complete lockdown in more than 40 countries, investors all over the world are concerned about the market instability and market volatility as the rise of the virus continues.
• When it comes to stock markets, often investors focus only on the upside potential of the share market and neglect the very fact that how quickly things can change and turn the market growth to negative.
• As a wealth coach, wealth creator, money multiplier and money manager, we always think of the downside risk and allocate capital accordingly.
• Here are a few ways you can avoid the contentment and design an investment portfolio built to withstand whatever market throws at you.
• OUR FIRST NOVEL CORONAVIRUS TAKEWAY
• UNDERSTAND YOUR INVESTMENT ALLOCATION
• Often when markets are in an upward trajectory, everything seems good, but when markets get rough, panic selling or impulsive selling sets in. Panic leads to impulsive behaviour, impulsive behaviour leads to emotional investing, emotional investing leads to poor decisions, and poor decisions lead to poor investment outcomes.
• Hence, it is recommended to take the time to understand what you own.
• OUR SECOND NOVEL CORONAVIRUS TAKEWAY
• DESIGN A DIVERSIFIED PORTFOLIO
• A thoughtfully-planned and allocated portfolio will not entirely eliminate the feeling accompanied with negative markets, but it will allow you to navigate those moments confidently.
• Hence, it is recommended to be proactive and not reactive. Set clear investment goals and ensure a proper mix of risk and conservative assets to meet your financial goals.
• OUR THIRD NOVEL CORONAVIRUS TAKEWAY
• HAVE EMERGENCY FUNDS AT PLACE
• Often financial planner recommends keeping at least three to six months living expenses aside as an emergency fund. But rarely do we implement. These funds empower us to confidently face the throes of a crisis, like the pandemic of COVID-19. Having a healthy emergency fund is pretty much essential, as those who are losing their income/paychecks due to COVID-19 are, unfortunately, finding out the hard way to meet with their daily expenses.
• OUR FOURTH NOVEL CORONAVIRUS TAKEWAY
• DON’T FEAR THE MARKET FALL
• To quote Warren Buffet, “Be fearful when others are greedy and greedy when others are fearful.”
• Investments can’t take the place of emergency fund, so don’t fall back on it. The Novel Coronavirus crisis has caught millions of people globally by surprise, and it’s too soon to tell when things will be back to normal. It’s not the time panic and flow with emotional or impulsive selling decision. Hold on, and your investments sometime.
FOUR WAYS TO OVERCOME EMOTIONAL INVESTING
Investing your hard earned money in an ever-changing market can swirl a lot of emotions. The rapture of the highs to the regret that accompany the lows, may make you feel like an on-going battle between your heart and your head.
Definitely, it is difficult to ignore the emotional pulls, of buying the tip based equities and selling when the market is at its low.
Here Are Four Ways To Overcome Emotional Investing.
ACTIVE MONITORING OF YOUR INVESTMENT PORTFOLIO
Frequent monitoring of your investment portfolio is a quint essential, in order to navigate the changing tides of the stock market. It may further help you to manage the behavioral impulse of emotional buying and selling by staying well informed and away from the media hypes and fear.
DIVERSIFY YOUR PORTFOLIO
Diversification provides protection during market instability. Diversification of portfolio is the process of buying an array of investments, which can also help you to diminish the emotional response to market volatility.
SET INVESTMENT GOALS
Know your purpose before you invest – that’s one of the secrets of wealth creation, as well as, tool that may help you stay away from emotional investing.
Having an answer and knowing your purpose of investment is a critical first step to investing. Maybe you’re 35 years old and saving for your child’s higher education or 45 and saving for your child’s seed capital or your retirement. Whatever your long-term or short-term goals may be, determining them early and determining your purpose will help you define your investment time horizon, risk tolerance, and overall investment strategy.
ACQUAINT YOURSELF WITH THE CHANGING MARKET TRENDS
Remember that little phrase, “History repeats itself?” it holds true and the equity market is no exemption. Having a little background knowledge, market research, or study on the market cycles and trends will help you stay emotionally stable while market is at its low. It
can help you ease the over excitement or fear you may experience when the market takes a turn.