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COVID-19 & Your Finances: How to Approach Investing Now

Global stock markets have experienced unprecedented volatility as a result of COVID-19 and that has a lot of investors asking about the impact this will have on both their short-term and long-term finances. 

We’ve received many questions about whether the current market decline means it’s time to cash out, hold, or buy more. Here are our answers:

1. Should I sell my investments and keep my money in cash to avoid further losses until the market rebounds? 

It never feels good when you see your investments go down in value, and it’s not unusual for some investors to feel the urge to be proactive and find the best time to get in and out of the market. It can feel like youre taking back some control, or agency, over your money. 

But the unfortunate truth is that this can be the biggest investing mistake a long term investor can make. That’s because you can only recognize the top or bottom of the market when you’re looking at it in the rear view mirror. By the time you recognize the bottom, you’ve passed it. 

History shows us that missing just a few of the best days in the market is costly, and can eat away over a third of your performance compared to staying invested. Consider this. Over a period of roughly 38 years, missing just the best 5 days of the S&P 500 would have cost an investor 35% of their return.

Nobody knows when those good days will happen, and if you miss them you can really set yourself back. When those good days come, theyre often surrounded by some bad ones. Just the time when investors are likely to panic, react, and miss out.

That’s why it’s best to save and invest regularly instead of trying to find the perfect time to invest. Staying invested through the ups and downs means you get all the good days, too - not just the bad ones.

Of course, right now there are many good reasons why you might need cash in the short-term and in that case, you may consider tapping into your investments. We cover some of those scenarios and potential consequences below and in detail in our COVID-19 FAQ on Managing Financial Emergencies & Investment Withdrawals.

2. Should I stop contributing to my investments until markets are more stable? 

That depends on your individual situation. If you need to use the money in less than a year or are concerned about your job security as result of COVID 19, then keep saving if you can, but keep the money safe in a savings account, ideally one that pays interest.

If you’ve unfortunately lost your job, or have reduced income right now, make sure you have enough to pay for the essentials before you set aside additional savings.

Consider what you are saving the money for, and when you plan to spend it. If you absolutely need to spend the money you’ve invested in the next year, then you may need to consider selling some of your investments - even if it means you are selling them at a loss. However, this decision shouldn’t be taken lightly, and you don’t need to make it on your own. Our team of experts are available to help you make the best decision for your circumstance. Please book a call with an adviser, and they’ll work with you to find the right solution.

If your goal is longer term and your income isn’t at increased risk due to COVID-19 then you should stick to your plan. Keep saving and investing. While continued volatility is certainly possible in the near future, deposits made in a down market will be invested at a lower price than earlier this year and will be well positioned for growth in a market rebound. Here’s some additional perspective on investing during a downturn.

If you don’t need to spend the money in the next year, then you should consider staying invested. As long as you’re still invested, you technically haven’t lost anything because your investment can still go back up. But when you move to cash, you’ve locked in your loss and, if the market recovers, which historically it always has, you’ll miss out.

If your goals haven’t changed, we do feel there is an opportunity for long-term investors right now. 

3. I’d like to invest, but I’m not sure about the right time. How will we know that we’ve reached the bottom?

As we explained above, you can only recognize the top or bottom of the market when you’re looking in the rear view mirror. Investors who panic and sit out of the market waiting for a bottom often miss the beginning of the recovery and set themselves back. That’s why it’s best to save and invest regularly instead of trying to find the perfect time to invest. 

4. Should I make small, frequent deposits right now, or wait to make bigger lump-sum deposits? 

Regardless of what’s going on in the market, automatically saving money every time you earn money is a great strategy. For example, if you get paid every two weeks, then save and invest every two weeks.

On top of that, when you make a new deposit, we rebalance your portfolio using that new money to buy assets that are underweight in your portfolio. So making frequent (say weekly, or bi-weekly) contributions is a way to take advantage of the current prices in the market.

5. Where should I put my money to take advantage of current investment opportunities?

That’s easy! The same place you were before: in a diversified portfolio matched with your investment goals and financial situation.

Typically, your investment strategy shouldn’t change based on volatility in the market. However, if your financial situation has changed, contact a WealthBar Portfolio Manager so we can make sure you are invested in the right portfolio. 

6. I’m worried about the possibility of losing my job. Should I move into a more conservative portfolio?

If you have concerns, please reach out to a WealthBar Portfolio Manager to review your specific circumstances. We can make adjustments to your portfolio to make sure they align with your long term goals.

7. I panicked and cashed out my investments. Now I’m worried about getting back in before another drop. What should I do? 

Many studies have found that time in the market beats timing the market. For example, one study found that if an investor held $100,000 in the S&P 500 in 2006 and temporarily exited the market in 2008 for one year in the midst of the downturn, by 2016 their investment would be worth only $113,608, while if they had stayed in the market it would have been worth $195,719. 

We do expect volatility to continue into the summer. But if your long-term goals have not changed, we believe staying invested is the right approach. Even if you’ve missed out on a few weeks of recovery, getting back into the market now means you have the opportunity to benefit from growth in the long run. If you're scared of getting back in, book a call with an adviser so they can understand what your goals are and help you make a plan to reach them. 

8. I’m young and not currently at risk of losing my job, how should I approach investing now?

When youre young, you have a fantastic resource: timeYou have time to build your savings, to benefit from compound growth on your investments, and to establish positive financial habits. 

For young investors, we would take this as an opportunity to learn. Start by working with a portfolio manager or financial adviser to make sure that your portfolio is tailored to your goals. If you’re investing now, you’ll be well equipped to understand the ins and outs of investing in the future. 

Investing can sometimes be an emotional rollercoaster. Sticking to your strategy through challenging times is what makes a disciplined long-term investor.

9. Is it a good idea to hold the WealthBar Cleantech add-on in my portfolio right now?

The Cleantech option gives WealthBar clients the opportunity to align their investments with their values. If that’s still important to you as an investor and your goals haven’t changed, then we believe you should continue to have cleantech represented in your portfolio.

A word of caution, however, is that the recent plummet in the price of oil is likely to impact the industry’s outlook in the short-term, simply because it will be cheaper to rely on fossil fuels for our global energy needs, rather than low carbon alternatives.

Still have questions?

See these other articles for frequently asked questions we’ve received in light of the COVID-19 crisis:

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