The current outbreak of coronavirus has sent the stock market plummeting. This has left many extremely concerned about their investments. In this article, we are going to go over some useful tips to help you separate fact from fiction. This information will help you to make wise decisions regarding your investments in these uncertain times.
Have Correct Definitions and Avoid the Media
Some of the most powerful tools you have are to properly understand common investment terms and avoid too much media exposure. The media will play on your emotions, causing you to make decisions that may not be best in the long run. They may also misuse terms. By having the correct definitions, you can start to separate fact from fiction. Some terms you should know include recession and depression.
A recession is a temporary period of economic decline. This is typically measured by a loss in gross domestic product for two consecutive quarters (six months). As of March, we are not in a recession, one cannot officially be declared until later in 2020.
Another term being thrown around is depression. A depression is a prolonged downturn in the economy that lasts for a minimum of 18 months. So, we have a long way to go before anyone can predict that we are headed for a depression.
Let Your Investments Stay Put
The best course to follow during uncertain economic times is to let your investments stay put. It is hard, but it is important to fight the mentality that you need to cut your losses and sell your investments before they go lower. Doing so will only end up costing you in the long run. With past health-related market drops the market returned to normal after 3-6 months. While past performance does not guarantee future performance, historical data can help quench fears regarding your investments.
Find Your Emergency Savings
Everyone should make having a sufficient emergency fund a priority. This fund should be at least enough to cover 3-6 months of expenses. If you have enough cash saved, it will prevent you from needing to rely on investments to pay bills during troubling times.
Think Long Term
The majority of investors need to make choices with a long-term mentality. You should put money into investment accounts with the mindset that those funds will be left alone for long time periods. A long time horizon allows you to recoup losses and to be in a better position to ride out times like these.
One of the most powerful steps you can take is to diversify your investment portfolio. Diversification prevents your portfolio from being hit as hard by losses. If you invest in multiple products throughout several fields, your portfolio will stand stronger against loss. Diversification does not prevent all loss. But it will leave you in a better position than if, for example, you had off of your money invested in the stock of one company.
Your Investments Can Weather Coronavirus
It is important to remember that this is not the first period of market turbulence and it will not be the last. Remember to keep a level head and make investment decisions that will benefit you in the long run.
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