Staying Calm In An Economic Downturn
COVID-19 is all over the news and all over our feeds. Tom Hanks! The NBA! The stock market! It’s hard not to panic. I’ve been following the news—and my money—closely and wanted to share some opinions about finance during uncertain times.
I don’t sell during a panic
The stock market always reflects what’s going on in the world. When the economy takes a hit, the stock market follows suit. When the market does take a dip, remember that while the value of your holdings might decrease, you really only lose money when you sell. When your value decreases, it doesn’t mean you own any less—it just means your holdings are valued at less, for the time being. The way I like to view the market: when it drops, it’s like shares are on sale. If you have the spare cash, this is actually an opportunity to buy.
I don’t try to time the market—neither should you
Instead of timing the market, there’s a tried-and-true investing method called dollar cost averaging, which means I invest in the market regularly, on a schedule, instead of trying to time it “right” to buy low and sell high. Trying to predict investing is kind of like trying to predict the weather: none of us really know what’s going to happen (who saw this pandemic coming?). So when you invest into the stock market regularly, like I do, despite what’s happening in the economy, it helps even out the months you buy high, or others when you buy low.
More on dollar cost averaging here.
Why understanding the market is key to withstanding a downturn
Warren Buffet (around these parts, THE BUFF!) is 89 years old. He’s seen a ton of investing ups and downs over the course of his almost 9 decades, and he’s the first to say hang on to your investments because ups and downs are part of the market’s inherent nature. However, it’s not part of human nature to log into your account, see a loss, and want to keep your money where it is. This is why we’re building a community to support each other during times like this when everything feels uncertain.
Bull and bear markets, and why we were due for a bear
People call an uptrend a bull market because a bull thrusts its horns up in the air. A downturn is called a bear market because a bear swipes its paws downward (lol, did you know that?!). We’ve been in a bull market for 11 years. The average bull market lasts 4.5 years. This is one of the longest-running bull markets ever, so it makes sense for the market to have a correction (read: downturn) especially in the face of a virus outbreak!
Bottom line
Let’s stay calm, stay safe, continue to buy assets (while they’re on “sale”), and keep learning investment principles that can carry us through times like these.
— Allegra, Founder & CEO of Factora
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