When COVID-19 started making waves, the stock market went into flux. Many businesses were negatively impacted by shelter-in-place orders and alterations to the economy. As a result, some once high-cost stocks saw stunning price drops. These shifts didn’t go unnoticed. Many people who hadn’t previously gotten involved in the stock market started to wonder if now was the right time to start investing. If you’re trying to figure out if the time is right. Here’s what you need to know.
The Impact of Your Investment Strategy
Whether or not now is a good time for you to hop into the stock market may depend on your investment strategy. While low prices on certain stocks may make it seem like using the self-directed. Pick-and-choose approach is a reasonable choice at the moment. That isn’t always the case.
Trying to time the market to snag a high-potential or high-value stock at a low point is incredibly challenging. Individual stock picking, particularly when you plan to actively trade, is a complex endeavor.
Plus, with this approach, there’s little to no diversification. It’s the equivalent of putting all of your eggs in one (or a very small few) baskets. A single event can wipe out most of the value of your portfolio. That’s never a good position to be in as an investor.
However, if you are focusing more on a buy-and-hold approach, there’s no reason you should avoid the stock market. Additionally, if your goal is to diversify your investments, such as by mainly choosing index funds or ETFs, then you are taking active steps to reduce your overall risk. You may be able to take advantage of some bargain-level pricing along the way, but your approach makes that more of a bonus than a core part of your strategy.
This is especially true if you intend to invest regularly going forward. For example, if you’re planning on putting a set amount into your investment account every month, you are also mitigating your risk. While you may not always pick up shares when they are at their lowest price, you likely won’t overpay often either.
Often, with regular, automated contributions, some of the emotional parts of the equation goes away, as well. You aren’t making investment decisions on a whim. Instead, you are following a preplanned approach, which is typically more methodical.
Whether the Stock Market Will Rally
As mentioned previously, COVID-19 has had a significant impact on the market. Some sectors tumbled, others flourished. Some may assume that certain industries will rebound, or that the thriving ones will come sliding back down, once the pandemic resolves. The trick is, none of it is guaranteed.
But no one can know for certain when the low will hit or when an upturn is the mark of a new positive market trend. While it may be reasonable to assume that the market will rally, precisely when, how, and how fast simply can’t be known until it occurs.
Luckily, if you’re going with a buy-and-hold strategy, the exact timing may be irrelevant. You can afford to shoulder short-term losses for the potential of long-term gains.
However, if you’re looking at short-term investments only, it’s impossible to predict whether you can achieve that goal in the current climate, or any other, for that matter. The landscape is volatile today, and that’s important to factor into the equation. But even when volatility is low, no investor is guaranteed positive growth, especially when the investment window is small.
Your Current Financial Situation
Technically, there is no perfect moment to start investing, per se. The right time is generally when you are financially able to do so. After all, the stock market typically moves up over time. If you’re in it for the long-term, then what works in your favor is hopping in sooner rather than later, regardless of the day’s market conditions.
Ideally, you need to consider what makes financial sense for you at the moment. Do you have a substantial emergency fund? Are you maximizing your retirement savings? Are you making solid progress toward your other savings goals? Have you gotten rid of all of your high-interest debt?
If the answer to all of those is questions is “yes,” then you could be in the right financial shape to start investing. If you answered “no” to any of those, then you may want to see what it would take to handle those goals first. That way, you can focus on areas that may be more critical, ensuring you don’t incidentally prioritize investing over something that should take precedence.
Do you think now is the right time to start investing? Why or why not? Share your thoughts in the comments below.
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