COVID-19 Recession: Should You Invest Now?
With 724,566 cases worldwide and 34,017 deaths (as of 30 March 2020, 1700), the COVID-19 pandemic has brought stock markets across the world to their knees.
Panic selling from investors has greatly impacted markets. In Malaysia, on March 15, the FBM KLCI slumped to its lowest since December 2011 due to the outbreak of the second wave of COVID-19.
However, an upward trend was observed after the announcement of stimulus packages from the government and relief efforts by financial institutions.
What do the experts say?
Apparently, a prompt rebound is on the horizon once COVID-19 comes under control. According to J.P.Morgan Asia Pacific’s chief market strategist Tai Hui,
“We expect Asian economies to experience a sharp drop in growth in 1Q 2020, but this should be followed by a prompt rebound once the infection rate comes under control.”
According to deVere Group’s chief executive and founder Nigel Green, the nature of the COVID-19 recession is deep but short since it was triggered by an unexpected shock instead of economic imbalances.
He also anticipates the Fourth Revolution which may open up new opportunities for investors.
“The coronavirus outbreak can be expected to speed up the so-called Fourth Revolution, which is fuelled by new technologies, such as artificial intelligence and mobile supercomputing.”
Lessons from seasoned investor, Warren Buffet
With more than seven decades of investing experience and a net worth of $70.5 billion (real-time net worth as of 30 March 2020), Warren Buffet has experienced wars, recessions, economic crises and many more market ups and downs.
The self-made billionaire bought his first stock at the age of 11 and filed taxes when he was just 13 years old.
During the 2008 financial crisis when investors were running amok to sell their stocks, Warren Buffet was buying.
He advocates looking at the long term instead of short term. This is what he said in 2008:
“Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions.
“But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now.”
According to CNBC calculations, if you have invested $1,000 in Apple stocks in 2008, it would have brought you a whopping $9222.50 return in 2018, including price appreciation and excluding dividends.
So, the experts say that is it going to be a short recession and the experienced investor with a proven track record claims that investing for the long term during a recession will reward in the long run.
However, if you plan to invest now, you should be extra vigilant.
3 Things to keep in mind should you invest now
1. Have you covered your necessities?
We are treading in fragile times. The International Monetary Fund has predicted that a global recession is on its way due to COVID-19. Here are some impacts you can foresee in the coming months.
- Employment uncertainty and impact on bonuses and increments
- Change in major life plans such as a wedding, house-buying and having kids
- Lifestyle changes such as cutbacks on lavish entertainment and vacations
- Financial planning revolving around retirement, loan payments and savings depletion
To face what may come, it is crucial to be financially stable before you embark on your investing journey. For instance, if your debt management, emergency fund, and your full-time job are on track, it would be a good decision to strengthen your finances through investment.
However, if you are not, it would be wise to focus on these aspects before you take your plunge.
2. Avoid individual stocks, opt for index funds and robo advisor platforms
Instead of making a bet on a single company and suffer a serious case of misjudge later on, you would be taking less risk if you invest in an index fund. This way, you would be investing in many companies which is less risky.
The key here is diversification.
Investment experts Warren Buffet and Tony Robbins have spoken highly of index funds especially if you are new to the market.
According to Warren Buffet,
“The trick is not to pick the right company; the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low-cost way.”
Meanwhile, Tony Robbins explained in his book Unshakeable that it is unwise to put all your money in one place and index funds take a passive approach and greatly reduces the possibility of mistakes.
Robo advisor platforms generally offer low fees, low entry requirement, and automated investment process using artificial intelligence.
These platforms use algorithms to invest your money (usually in ETFs) and will rebalance your portfolio according to market conditions. This means less worry for you and you get to diversify as well!
As an iMoney reader, you get to enjoy reduced fees when you sign up using this link. Note: Do thorough research before you invest!
3. Focus on the long term
If you are investing to fund your grand trip next year, investing now might not make the cut.
The goal is long-term. Think: retirement.
Another tip for an effective long-term investment is to never time the market. According to Warren Buffet,
“We have no idea -and never have had – whether the market is going to go up, down, or sideways in the near- or intermediate-term future.”
Although he said this in 1987, he has been proven right time and again till date. Waiting for the perfect market is a waste of time and can be detrimental to the success of your investment.
Happy Investing! But, always read and research before you take the plunge!