The Covid-19 pandemic hit hard, and it changed many things including how we will look at investment portfolios in the future. In the recent months many platforms have seen a big dip in active users and an overall drop in investment activity. The world’s major stock markets are hovering around their pre-pandemic levels and many traditional investment vehicles such as mutual funds and insurance products are underperforming, which is unprecedented in the history of the markets. The question is: is this just a short-term blip or the start of something more significant? Many investors are now wondering how long the stock market funk will last and whether they should add to their investments or simply lock in profits while they can.
It’s never easy telling someone how to run their investment portfolio. Each person’s situation is unique, and there are as many different “best practices” for good investing as there are investors. However, over the years we have developed some general rules of thumb that help guide our recommendations so you can always trust us to put your best interests first.
Take A Long Haul View
When the markets tank, it’s tempting to try to time the market’s top before you get hurt again. However, in smooth economic times this is the perfect opportunity to accumulate stocks and other investments that you think will do well in the long run. The key is to build a diverse and representative portfolio of stocks that you think will do well regardless of the short-term ups and downs. This is easier said than done, especially since you won’t always know when the next major stock market crash is going to occur. But, by taking a longer view and always having stocks in your investment portfolio that are sensitive to global economic and market shifts, you give yourself the best chance of weathering the short-term rough patches and keeping your money intact for as long as possible. In times of crisis, you can’t always rely on the security of your regular paycheck, so it’s essential to have a strategy that will keep you financially stable no matter what happens in the world. Even if you think that now is the perfect time to sell, you might not always feel that way in the long run.
Focus On Diversification
One of the things that the pandemic has highlighted is the need for greater diversification within an investment portfolio. The fewer the investments you have in a single industry or topic, the more likely you are to lose money in a single catastrophic event. When the markets tank, those with a greater number of investments in several different industries and topics can take advantage of the cheap prices that come with a falling market and make money through buying on the cheap. The trick is to find a few good businesses within a variety of industries that you think are undervalued and can help you capitalize on cheap prices when the markets are down. Owning a few well-diversified companies can also help you ride out the rough patches when the markets are acting skittishly, giving you some extra security in case you need it. A good rule of thumb is to put a percentage of your portfolio into as many different industries and topics as possible, to help ensure that none of your investments are “too dominant” or overly concentrated in any one area. If you want to be able to sleep at night knowing that your money is working hard for you, diversification is an essential part of the strategy.
Look To Buy On The Dip
One of the most critical things that an investor can do to succeed in the long run is to buy on the dip. When the markets are in a good state and you have the confidence to purchase shares at full price, you can be sure that prices are going to move higher over the long term. Even during a time of crisis, when there are major changes in the way we all live and work, there are still people willing to buy and sell and the prices of stocks remain stable and often move in the right direction even when the overall market is in the dumps. When the market is going through a rough patch it can be a good opportunity to purchase shares on the dip, before prices have another round of serious drops to deal with. The trick is to identify those companies that are in a state of sustainable growth and don’t mind throwing off a little profit (or even making a loss for a while) to grow their business and multiply their value over time. When you buy stocks on the dip, you’re not only buying low but you’re also getting an investment that you know is going to increase in value over time, something that can’t be said for all stock market investments.
Make Sure You’re Aware Of The Risks
Even though the world’s major stock markets are doing well, it doesn’t mean that all is well. While you might be tempted to try to time the market and get out before it drops any further, letting the sharp end of the market brush you off will only get you so far. When the markets decline, there are always going to be companies that are more vulnerable than others and it pays to be aware of this. One of the best ways of doing this is by following the companies that you are invested in, reading the reports that they file with the SEC, and watching the news stories regarding their businesses. As an investor yourself, you have a special interest in seeing these businesses succeed and grow, which makes it easier to keep an eye on things when they’re going well and easier to spot the warning signs when things start to go wrong. Owning your own business is also a major risk, something that is not compensated for by any amount of money, and it’s easy to get overwhelmed by the amount of work that is required. Make sure that you are aware of the risks that you are taking on by doing business in the stock market, as well as the risks that come with being an investor in general. If you can’t handle the financial risks that come with investing in stocks then perhaps other types of investment vehicles, such as real estate or funds that focus on growth companies, might be a better fit for your investment needs.