February 23rd, 2020 - the stock markets around the world started slipping amid fears of the coronavirus (COVID-19).
This week has been one to separate the successful investors from the unsuccessful. But the question is, amid all the panic and markets crashing, how do you become one of the successful?
Turning on any TV channel, or scrolling through any number of online forums devoted to finance will tell you which stocks to buy, which to sell. There are countless predictions of where the “bottom” is, each saying a different thing. With all this noise, who is winning?
To answer that question, we need to look at investor discipline.
What was your investing strategy before the noise of the news started preaching panic? Have you changed your investing strategies as a result of the information screamed at you?
Many of you have been reading long enough to know, the best investing strategy is to make regular contributions. This will result in the dollar-cost average of your portfolio being lowered during market downturns like this week has been. When the market recovers, you will be further ahead because you have been purchasing investments as they have been decreasing in value.
Unfortunately, it is too easy to be caught in the sway of news media, and start abandoning your proven investment strategy by trying to time the bottom of the market. People caught in the latest Wall Street hysteria hold back regular investment contributions, thinking that they alone can perfectly predict the bottom of the market. This type of wishful dreaming gets in the way of the investing truths that we all know. None of us are smart enough to perfectly time the market.
Your best bet? To continue investing as you always have, on whatever regular schedule you use. For me, that is the start and the middle of the month, aligned with my pay cycles. Since the crash happened after my mid-month contributions, I effectively paid full price for my investments at that time. My next regular investment (made probably around the time you are reading this), based on my own schedule will therefore be a purchase of ETF’s, stocks, and bonds that are “on sale”. This purchase of “on sale” investments will lower the average cost I have paid for all market investments in my portfolio.
The key take-away here:
Keep investing per your schedule. Don’t get caught up in the hype and try to time the market, or you might just miss out on a day of rapid recovery and all those associated gains.
Of course, for those looking for a little extra credit, or for those who simply love a good bargain. The stock market investments are on clearance right now. Perhaps it’s worth a little extra belt-tightening over the next few weeks or months, and throwing a little extra in with your regular contributions. The extra purchases made when stocks are “on sale” will only serve to increase your financial wealth as the global economy steadies out over the coming months.
If you can keep your calm during panic, and recognize a good financial opportunity when it presents itself, you’ll be well on your way to financial freedom! Happy, healthy, and prosperous investing to you!