Friday, February 28, 2020

Coronavirus: It's A Good Time To Buy Stocks

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If you've watched the news recently, you may think we're heading for the biggest market crash since the Great Depression! Why? Well, because of the coronavirus pandemic of course!

From CNBC:

Stocks tumbled once again on Friday, adding losses to the market’s worst week since the financial crisis, as worries over the coronavirus and its impact on the economy continue to rattle investor sentiment. 
The Dow Jones Industrial Average dropped 901 points, or more than 3%, to trade below 25,000. The 30-stock Dow was down more than 1,000 points earlier in the day. The S&P 500 slid 3.1% while the Nasdaq Composite fell 2.4%. 
The major averages were under pressure on Friday in part because investors kept adding to their bond-market exposure and fleeing equities. The benchmark U.S. 10-year Treasury yield touched a fresh record low. It was last at 1.16%. Yields move inversely to prices.

Well, I'm here to tell you that you shouldn't panic. Not only that, you certainly shouldn't sell everything and lock in your losses!

From Investopedia:

When the stock market goes down and the value of our portfolio decreases, it's tempting to ask our finance advisors what we should do. Instead, we should be asking: What should I not do? 
For example, don't panic. This is often our first reaction to a drastic drop in the value of our hard-earned funds. To prevent this unfortunate situation, know your risk tolerance and how this will affect the volatility of your portfolio. Then, hedge against the risk of a drop in the market by diversifying your portfolio... 
...A downturn in the market is a temporary thing. Thus, it is better to think long term than to panic and sell stock at a low during a downturn.

It's easy to go into panic mode when you see the value of your portfolio go down, but good investors diversify and are contrarians! By contrarians, I mean they do the opposite of what everyone else is doing by instinct. When the market is low, and people are panic selling, contrarians buy at a tremendous discount! When the market is high, and everyone is buying, contrarians sell for a tremendous profit! Buy low, sell high! It's the name of the game right?

It's like Warren Buffet once said, "Be fearful when others are greedy, and be greedy when others are fearful."

If you are buying stocks ad-hock, one at a time, then maybe you should panic a little. Buying stocks one at a time is a fools game. An easier method is to invest in already diversified index funds, money market accounts, mutual funds, ETF's etc. The easiest way for a novice investor to get into that, in my opinion, is by signing up with an Acorns account.

Via Acorns:
Acorns Invest automatically invests your spare change and lets you invest as little as $5 any time or on a recurring basis into a portfolio of ETFs. Your investments are then diversified across more than 7,000 stocks and bonds, and Acorns automatically rebalances your portfolio to stay in its target allocation.
In conclusion, if you are thinking of pulling your money out of the market now, you should calm down. Have a cup of coffee, and actually consider putting more money in now while stocks are cheap!

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