Pandemics like COVID-19 don’t come around often, but when they do, they leave behind a path of destruction. In addition to the human toll, pandemics also have a lasting economic toll, making it hard to know how to invest during a pandemic. Investors panic, markets drop, revenue tanks, and unemployment skyrockets. We’ve already seen how this can happen with Coronavirus and it will probably be many years before the global economy fully recovers.
However, this doesn’t mean that you should liquidate your portfolio or hoard all of your money under the mattress. On the contrary, now is a great time to invest. That said, there are a few important tips that you should remember before you start to invest during a pandemic.
Don’t Forget About Small Businesses
When a pandemic strikes, everybody gets hurt. However, the businesses that hurt the most are usually the ones that have the most to lose. Big businesses usually experience the greatest losses on the stock market, bringing their investors down with them. So, investing in big business presents a great deal of risk during a pandemic.
While small businesses are affected as well, they present a unique opportunity to take advantage of new market trends. For example, a small clothing boutique might begin selling signature COVID-19 masks, increasing both sales and branding by promoting public safety. The key is to find a small business that can capitalize and persevere during rocky economic times and support them with your investment.
Don’t Overthink Your Timing
Anyone who invests in stocks knows that timing can be crucial. Buying or selling stocks at the wrong time can spell disaster for your portfolio. Alternatively, timing your actions well can yield amazing results. Getting your timing right during “normal” economic times is hard enough, but doing it during a pandemic is nearly impossible. This is why a lot of investors prefer using stock tracking apps instead of traditional brokers. The control is right there in their hands, regardless of their location or time of day.
The economy has been like a rollercoaster ever since COVID-19 came into being at the end of 2019. Many investors have tried to time their purchases well, but it has been difficult to see how far stocks will actually fall. Though markets have partially recovered since the initial drop, many individual stocks continue to see declining prices.
What does all this mean? It means that you shouldn’t overthink your timing. The economy will eventually recover in full, meaning that employment, revenue, and stock prices will return to normal. So, as long as you’re investing for the long-term, you have little to worry about.
Don’t Put All Your Eggs in One Basket
While the statement above is true during any time period, it has never been more important than now. Many investors are trying to cash in on the first company to develop a COVID-19 vaccine. This is a huge mistake. The vast majority of investors will go with the wrong company and end up losing, when they should have spent their efforts diversifying their portfolios as they invest during the COVID crisis.
Instead, balance out your portfolio as you invest during the pandemic. Stick with broad market ETFs and other low-risk funds to ensure that you don’t take on too much risk. You should also consider investing your funds outside of the stock market. Many people have great success investing in real estate, a REIT, or even a piece of art. In uncertain economic times, you can’t afford to lose your life savings on a risky purchase. So, diversify your portfolio as much as possible and find ways to balance out your riskier investments.
If you follow the three “don’ts” above, you’ll be in a much better position to weather the storm. Investing during a pandemic is all about reducing risk and focusing on the long game. Pandemics come and go, so don’t get too wrapped up in daily fluctuations. Instead, research small businesses in which to invest, avoid overthinking your timing, and remember to diversify whenever possible!
Author: Gal Green