Smart investments are those made ahead of the curve, so where should you be putting your money once we’re back to business as usual?
The coronavirus has had a massive impact on all of us, from social isolation to remote working and more. It’s turned our daily lives on its head and dominated headlines and conversations across the globe.
And anything that has such a huge effect is, of course, going to have an impact on stock markets too. This is obviously causing for concern for investors, but it’s important to remember that dramatic market changes can provide opportunities too.
Investing during the COVID-19 crisis: should you do it?
It was Warren Buffet who said, in the wake of the 1987 stock market crash: “Be fearful when others are greedy and greedy when others are fearful.”
This mentality has resonated throughout the investing game for the last 30+ years, from the dotcom bubble to the 2008 recession and even the Brexit referendum.
The coronavirus may feel like a very new kind of challenge, but the lessons for investors remain the same. Planning carefully now can stand you in good stead for the future. You just need to be confident about how and where you are investing.
Some of the questions investors are continually asking themselves in 2020 are:
- If markets are still falling, why not wait to buy at the bottom?
- Should I invest as much as possible now?
- How do we know markets will bounce back?
The temptation is to get out now and never come back, but investment history teaches us that holding your nerve can pay off. But on the other hand, there’s no way of telling when the bottom will come, so it’s better to get in there early than miss the bottom completely. It’s about smart timing.
You want to be fully invested by the time markets reach the bottom line. Try feeding a small amount of your portfolio every few weeks – perhaps the money you would typically be spending on restaurants, pubs and the cinema if you are still receiving disposable income.
Look for underlying quality
Highly respected companies with excellent profitability and a strong capacity for generating cash are the ones who bounce back well. Look for brands that consistently generate a return on capital employed of over 20 per cent.
Buying funds and stocks just because they are cheap is not a smart move right now. Instead, you should be looking for underlying quality. This means not necessarily choosing the brands who have been hit the hardest by COVID-19.
Stick to safe havens
The idea with investments isn’t to be brave but smart. This means being cautious with your finances and feeling no shame about sticking to more reliable assets, such as gold, bonds and defensive equities.
The price of gold has rallied to within 8% of its all-time high in 2020. Meanwhile, falling Treasury yields have pushed bond prices even higher too. Consider safe bets when it comes to businesses too. Your Googles, Microsofts and Coca-Colas, might produce less reward for you, but they’re also very unlikely to suffer irreparable damage from COVID-19.
Don’t rely too much on forecasts
Forecasts are there to help us make smart decisions, but don’t take them as gospel. Many stocks will be looking cheap on a price/earnings ratio right now, but these forecasts can change very suddenly, especially with businesses losing revenue by the day.
What’s more, this can work the other way too. Investments that look particularly unattractive right now could see a surge in the coming months. Travel and tourism, for example, will likely skyrocket again once flight restrictions are lifted and people can make up for lost holidays.
Seek out support
Investing can be a tricky game, especially in times of great change and uncertainty. That’s why it’s a good idea to seek out expert independent financial advice where possible. This can help give you a clearer picture of the industries you’re considering, and provide peace of mind that the investments you’re making are indeed smart investments.
Are you looking for help during these turbulent times? Speak to the team at Carrick Financial Management today. We offer expert and impartial independent financial advice centred around you and your requirements.