The stock market and the economy are in question right now. In addition to all the dominoes set up to cause a drop, the Coronavirus is sweeping across the world. I do not want to start a debate over the legitimacy of the panic. Regardless, the pandemic is causing everything from widespread stress to overrun hospitals. But the main question is what will happen to the economy, and whether investing during stressful times is wise.
Investing During Stressful Times
Normally, it would be easy to say that you should buy the drop in the markets, that is investing 101. However, putting money in the market during stressful times can feel like putting money on a gas burner that was not ignited. You may feel like a spark will incinerate your money. You probably panicked just seeing the image of a roll of money on said burner.
There is no guarantee that the drop we experienced during the last week of February is the furthest the stock market will drop. In fact, with the first US death from the Coronavirus reported just today, I highly doubt this will be the furthest down the stock market will go.
I recommend following the dollar cost averaging method where you keep contributing in regular amounts. Investing a lump sum may not be the best idea right now, especially if you have any other financial goals. I know that sounds like typical financial wisdom, but it is not wisdom if you can only apply said wisdom some of the time.
If you want to invest a lump sum, try to diversify your portfolio or to invest in real estate or a business you have control of. But most importantly, make sure you do not invest any money you will need this year.
Should You Take Money Out In These Stressful Times?
I will put this as simply as possible. If you are in your 20s to 40s, the last thing you should do is take money out of your investments right now. I know some people who want to take out money for large purchases such as a house. However, the new drops are forcing them to worry about their plans. If you are in this situation, you must evaluate if you want to liquidate more assets than you planned, or wait for the markets to recover.
However, if you are in your 50s or older, you may be worried about having enough income when you retire. It is still not wise to liquidate too many assets. In this case, you should try to only liquidate your lowest risk assets including bonds and money market accounts. Avoid liquidating your equities, they are likely to recover in the future.
If you need to liquidate more assets than you are comfortable with, you may need to find different forms of incomes on top of your retirement funds.
Pandemics like the coronavirus are nothing new. Remember SARS from the 2000s, the swine flu, and the Ebola virus panic from 2010s? Also note you are reading a post written by someone knowledgeable in biochemistry with a focus on virology, I could fill libraries with books about diseases that are ravaging the world.
The fastest spreading pandemic is not any virus, but fear. Fear is a normal response, but the reactions to these fears are what separate the average from the greats. Taking large risks are necessary to provide for many people. Investing during stressful times is not for everyone, but it can be one of the best ways to forge your wealth.