Things to Know When Investing During a Pandemic
When it comes to building wealth for the long term, few methods have been as effective as investing in the stock market. Stocks tend to provide better returns than money market accounts or bonds. They also come with fewer hassles than owning rental properties. This fact should not change during a pandemic.
How A Pandemic Can Affect The Market
In the short term, a pandemic can negatively affect the stock market. Depending upon the spread of the disease, major disruptions to everyday life can take place. This can lead to panicked selling in some instances as people lose their jobs and unemployment rates skyrocket. This is what happened in the early days of the COVID-19 outbreak.
After hitting lows in March 2020, the market started ascending. However, the pandemic market has been marked by increased volatility. Where it will go in the short term is anyone’s guess. However, there is a high likelihood that the market will be higher 10 or 20 years down the road.
Tips For New Investors
The most important thing to remember if you’re a new investor is to expect volatility. The market will go up, and it will go down. Over a period of decades, the market tends to go up.
However, in the short run, you may lose some money. These losses will not actually hit your wallet unless you decide to sell when the market is down. This leads to a second important tip. Keep investing. It’s actually better to invest when the market is down. This provides a lower cost for your stocks. Buying low tends to increase long-term returns.
While you might want to take a risk by investing in individual stocks like a possible Rivian IPO, you’ll want to diversify. Index funds can be a great way to achieve diversification easily. To get more into what Rivian is, the company is an electric vehicle manufacturer, best known for its SUVs and pickup trucks. Money Morning states, “Delivery of these vehicles is expected in 2021.
Amazon hopes to have 10,000 of the vehicles in operation by 2022. The full delivery of 100,000 electric vans isn’t expected until 2030.” With that being said, Rivian is a stock to look into and may have potential. Wait for an earnings report that way you’ll have a bigger picture of what direction the company is headed to help influence your decisions.
Setting Reasonable Expectations
You should not expect to double your money each year. You’ll need to moderate your expectations. The market could go down 30% this year, or it could go up 20%. No one knows what’s on the horizon.
However, over time, the market has provided long-term gains of about 10% each year. Inflation takes some of these gains, but a 7% or 8% return over the long haul is a reasonable expectation. To achieve these returns, you’ll have to stay invested. In other words, don’t sell when the market is down.
How Different Is It To Invest During The Pandemic
Investing in a pandemic is similar to investing during other “black swan” events. There can be extensive volatility. The market can swing wildly from day to day, depending upon the news.
You might lose your job and have trouble coming up with as much money to invest as you had when life was going great. If you get hit with a major medical bill, it can hurt your ability to invest.
In spite of heightened fear and volatility, a pandemic can be the perfect time to start investing in the stock market. As long as you have money coming in, it’s a great option for building long-term wealth, and you’re likely to find stocks on sale when things are going badly.