The stock market has seen unprecedented volatility in recent months, which is likely to continue when the country officially enters recession and COVID-19 cases increase across the country.
In the midst of these market turmoil, only 6% of investors take a smart step. According to a recent survey by Principal, this is the percentage of people who plan to increase the amount they invest as the market goes through this rough phase.
Why invest more now is a smart move
While Coronavirus crashed the market in March, April and May, stocks recovered. Shares were on a bumpy ride in June and rose sharply earlier in the month, but jumped as coronavirus cases increased nationwide and states began to push their plans to reopen.
While positive employment in June pushed the market up in early July, the country is still in recession and public health experts warn that the situation could deteriorate significantly. In this case, another market crash could be just around the corner.
With this fear, you might be tempted to sit on the sidelines because you don’t want to suffer losses. However, the reality is that recessions and market corrections generally offer unique buying opportunities that give you the opportunity to buy stocks at bargain prices to maximize your return. Indeed, one of the world’s top investors, Warren Buffett, advised “to be fearful when others are greedy and greedy when others are fearful”.
Of course, you might be tempted to sit on the sidelines, not because you’re afraid to invest in turbulent times, but because you’re hoping to buy at another low after another crash. Unfortunately, no one can predict when this will happen, and if you wait, you may be missing out on good buying opportunities that currently exist.
However, investing more is not for everyone
Investing during a recession can maximize your returns, but this is not the right approach for everyone. Obviously, given their current financial situation, some people don’t have the money to boost their investments.
In addition, you shouldn’t put your money on the market if:
- You don’t have a solid investment strategy. You should only invest in things that you understand and make sure that you are confident in your decisions so that you are not tempted to respond and panic when things look rough.
- You don’t have an emergency fund. During a recession, saving cash for emergencies is more important than ever so you don’t have to borrow, pay interest, or rob your investment accounts to possibly cover your loss to meet your short-term needs.
- You don’t want to commit to having your money invested for several years: Investing in a recession can maximize long-term gains, but can also lead to short-term losses. If you can’t leave your money invested for at least a few years to wait for a downturn, don’t invest it.
Consider putting more money on the market if you can
When you’ve met your basic needs and are ready to invest wisely and wait for potential downturns, you can often get high returns by investing in a volatile market.
And although there is always a risk associated with every investment, long-term investors who have made the wise decision to buy additional shares during a recession will generally enjoy it.