Okay, I know you’ve heard by now that COVID-19 has caused mass selloffs in the stock market. I haven’t checked the exact numbers, but I think things are down about 30% from the peak. This is obviously a huge number and has affected everyone. Some people are panicking, some people are doing nothing, but many are wondering what they should do with their investments right now?
Interestingly enough, much of the traditional advice really doesn’t apply anymore since the Coronavirus is a worldwide pandemic. Many people thought it would go away after a short period of time or it would only affect Asia, but it’s clear that we’ll be feeling the effects for a long time.
If you’re trying to figure out what to do with your investments, consider the following scenarios and see if/how they relate to you.
Continue to invest
Downturns are normal and the best thing you can do with your investments is to continue to invest. Make your regular automated contributions so you’re dollar cost averaging. By doing this, you’ll be paying the average price and you’ll be able to ride the wave when things eventually go back up. This strategy only applies if you can continue to make regular contributions. In other words, if you still have a stable income, this is what you should be doing right now.
Since prices are down 30%, this is a huge buying opportunity for people who are sitting on a bunch of cash. After the first drop of 10%, I immediately invested some extra cash I had. Of course, things dropped even further, but I still got that discount at the time. Who knows if things will get lower, but just about every stock is on “sale” right now. A better idea might be to just purchase an ETF or mutual fund so you get more exposure. If you’re worried about dropping a lump sum into the market at this time, consider making a few equal contributions. For example, you could invest say $1,000 a month until you’re deployed all your extra funds.
Reduce or stop investing
Generally speaking, if you’ve seen your hours reduced or your income has dropped, you’ll want to lower the amount you’re investing right now. By doing this, you’ll increase your cash flow a bit. If you’ve been temporarily laid off, then stop all of your investing now as you’ll want to keep as much cash as possible for now. Even if you have an emergency fund, it’s worth reducing or pausing your investments for now just to see how things play out. Cash is king in these times.
Sell some of your investments
Okay, think of selling as a last resort. Once you sell, you crystalize any of those losses that you’re seeing in your portfolio. The thing is, if you don’t have any income and you’ve drained your savings, then selling your investments may be your only choice since it’ll give you some access to some much needed cash. There’s no doubt that this option will hurt, but desperate times call for desperate measures.
Before you do any of the above, it’s also worth checking to see if you qualify for any government financial aid. Canada has already announced a huge package that will be available to Canadians which could help you through this storm. I’m personally keeping an eye on the proposed up to $900 bi-weekly payment for 15 weeks that self-employed individuals will be able to apply for.