The coronavirus has caused uncertainty in the financial markets and raised fears that we are headed for a recession. What’s an investor to do?
Investment experts generally agree on two key principles during periods of market volatility: stay invested and continue to build your portfolio.
Investors who have seen their portfolio drop in value may be tempted to sell certain holdings for fear it will keep dropping. But as a general principle of investing, experts advise to be patient. Selling at a loss locks in the loss; waiting for the market to recover may give your investments time to regain their original value.
Build your portfolio
When markets are down, you may get the urge to put your regular investment plan on hold and park new investment dollars in low-interest money markets. It’s generally considered a safe choice, but it’s also a missed buying opportunity. Sitting on the sidelines in cash means you could miss out on the recovery. Not only that, but when you do buy back in, you would be investing when prices have already gone up.
Broadly based market declines tend to bring down the prices of all stocks, including stocks with strong fundamentals. Purchasing quality companies at value prices—buying low—can lead to profit when the market recovers.
Do what’s right for you
If you’re worried about market volatility, be sure to talk to your advisor. Each investor is unique, and your investment objective or risk tolerance may have changed. Either way, your advisor can help you understand the factors behind the current situation, assess the outlook for the future and help you make decisions that are best for you.