Fear and panic about the coronavirus is spreading faster than the actual virus itself. Asia is a massive market for consumer goods; also, many goods or their components are produced and manufactured in Asian countries. Due to the coronavirus, everyday life in parts of Asia, particularly China, has temporarily come to a halt. We are now starting to see things come to a pause in Italy which has been majorly impacted by the virus.
Everyone I talk to is freaking out about the way that the market is reacting to coronavirus news, but there is one major factor to consider, age.
There is a unique situation at play when you’re investing in turbulent markets in your 20s, 30s, and 40s because your retirement time horizon is further away than it would be for someone in their 50s or 60s.
Regardless of age, one of your biggest financial goals should always be investing for retirement. Young investors and newbie investors tend to feel an overwhelming sense of discomfort and nervousness when there are sharp changes in the market, but just chill, don’t worry. Historically, the market has always recovered after drops, recessions, and crashes. For younger people, retirement is well into the future, meaning that market volatility should not ruffle your feathers too much because you have plenty of time for the market to recover before you’ll even need to tap into those funds.
As an investor, it is important to make decisions based on reason, rather than emotion! Don’t start selling all the stock you own out of fear. Instead, focus your attention on things that you can control: creating & sticking to a budget, living below your means, establishing an emergency fund with 6-12 months of living expenses, and portfolio asset allocation.
Here are a 3 financial steps to take if you are 15+ years away from retirement.
Action Step 1: Save for a Rainy Day
People have been saying that we are overdue for a recession for awhile now, but the truth is, we can’t actually predict what will happen with the economy. All we can do is make sure that we have enough saved in case tough economic times come along.
Until just a few weeks ago, the economy and the market was mostly booming. Some stocks were trading at all-time highs. In times like that, it is easy for “lifestyle creep” to settle in and get comfortable with spending more money on nonessential things like dining out, going to movie theaters, and going on vacations. Cutting back on this type of unnecessary spending will allow you to regain control of your finances and prepare for the future. Try to save a little more money to give yourself a little wiggle room in case of an emergency, so if you’re currently saving 10% of your income, bump your savings up to 15% if you can. Increasing your savings rate is especially important if you have a big purchase or expenditure planned for the near future, like buying a home, buying a car, or sending your kids to college. Customize your savings goals to match your current or upcoming situation.
After you’ve reassessed your finances and determined how much you need to save, set your savings on autopilot! Use automatic draft to direct money from your primary checking account to your savings and investing accounts. Doing this will ensure that you’re consistently saving.
Action Step 2: Stay the Course
Aside from real estate investing, investing in the stock market is one of the few proven ways to build wealth. We’re in the investing game for the long run and economic booms and busts are unavoidable. Since there have been major changes in the market that have investors panicking, now may be a good time to reassess your asset allocation, but don’t start selling prematurely just because fear is setting in. Again, don’t make decisions based on emotion. You are investing for long-term gains, so don’t be afraid of short-term volatility. If the turbulence is too much for you to bear, then just don’t look! Stop checking your portfolio until the market rebounds again.
Photo by Allie Smith on Unsplash
Action Step 3: Buy More, it’s on Sale!
The coronavirus has taken center stage in the mainstream news, but in a few months, we’ll be focused on something else. One of the most successful investors in the world, Warren Buffett, says that we should focus on long-term investing in strong businesses. Buffet says to “be fearful when others are greedy and to be greedy only when others are fearful.”
Buying stocks during a market dip can allow you to make a fortune in the long run. You just need to have the courage to do what others are too afraid to do. This is an opportunity to buy shares of great, successful companies at a discount.
We all love a good sale, right?!
Even if you choose not to dump a lump sum of cash into the market during the coronavirus scare, you should still keep investing so that you can take a dollar cost average approach. When dollar cost averaging, you invest money steadily over time, which ensures that you’re buying whether the market is at a high, low, or somewhere in between. This is the approach that many financial advisors tell their clients to take because it ensures that you’re always investing and it removes the temptation of trying to time the market.
The coronavirus is not the first global health illness that has caused volatility in the market and it certainly won’t be the last. You should aways make rational investment decisions, which may make you feel emotionally uncomfortable, but that’s okay! We’re not investing to feel good, we’re investing to get rich! Whatever you do, don’t freak out about your investments and buy more while prices are low!
The road to wealth building may have a few bumps in it, but it will totally pay off in the end.
(Have you set up your brokerage account yet? Check out Fidelity and Robinhood!)
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