A question that has been on many people’s minds lately has been: “What should I do when the market is tanking?” The coronavirus (COVID-19) is spreading around the world and is having an effect globally, not just from a health standpoint, but also economically. The markets have been taking a nosedive. A lot of people are concerned about what they should be doing, wondering if they should be selling or if they should be buying.
Although the COVID-19 has made this topic relevant, it’s important in general that people know what they should be thinking when the market is tanking.
Prepare for a Market Dive
The most important thing in terms of preparation is to have a plan. The plan shouldn’t necessarily be specifically for when the markets are down, but should be a time-tested plan that can weather both the ups and downs of the market.
AllGen’s Path to Financial Freedom
AllGen’s Path to Financial Freedom involves many steps, and everyone experiences these different stages or steps at different points in life. Some of the key steps in our Foundation stage include paying off consumer debt, having emergency reserves, and having all the proper insurance in place. This is so that if you go through a bad time, like the coronavirus pandemic, or if you lose your job, the economy takes a hit, your car breaks down, or you have to replace a roof, you would be able to pay for that and not be in financial trouble.
Invest During a Market Downturn
In a case when the market is going down, if you follow that plan, you won’t have to be as concerned. If you have no consumer debt and have emergency reserves, you can weather an economic downturn with less stress.
Something more productive to consider may be whether or not you have extra money that you could put towards the market during this time. Or, if you contribute monthly to the market in the form of a 401(k) or an investment account, you should continue to make those contributions.
Low Share Prices
It’s important to continue investing during a market downturn. As the market goes down, you can buy more shares for the same amount of money. Eventually, the market will rebound and each of those shares will be worth more. AllGen clients who continued to invest in the market during the 2008 credit crisis were rewarded with how their investments turned out as the market rebounded.
Stock Market Black Friday
High-profile investors have described a market downturn as the Black Friday of the stock market because shares can be purchased at discounted rates. Instead of running from the market during a downturn, investors should be drawn to it. Warren Buffet has said that the stock market is the only place where when everything goes on sale, everyone runs for the exits.
Don’t Let Emotions Interfere
It’s counterintuitive to run from the stock market during a downturn. Many people do run during a downturn, which is driven by emotions. Emotions are the last thing you should allow to interfere with decision-making when it comes to money. That isn’t to dismiss the reality of an economic downturn. People might be laid off or, in the case of the COVID-19 outbreak, might not get paid for a period of time because businesses have been forced to shut down.
Have a Plan
It’s just more reason why you should have a plan in place. If you have an emergency fund, you don’t have to worry about dipping into your investments when they’re also down, which can cause a snowball effect. The number one recommendation we can make is to have a solid financial plan that can help you weather bad times and, hopefully, put you even further ahead when the economy turns around.
Don’t let this keep you up at night. Obsessing over the market is what we do!
Give us a call if you have any questions. We’re here to serve.
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