7 Things to Remember While Investing During Coronavirus + Free Investment Review Checklist
Today I am going to share friendly reminders to remember while investing during a pandemic. Also, I share a free investment review checklist to understand what issues are involved so you can take quick action.
According to Google Trends: Year in Search 2020, the most searched term in the United States during the coronavirus was "best stocks to buy during coronavirus." During times of uncertainty, we sometimes look for other ways to offset lost income by taking on riskier investments. Remember, do not invest money that you will need within the year or if you need the money immediately. Doing this can significantly put you in a dilemma. Investing is not a game. This is your hard-earned money, and if you begin to gamify your money, you are eventually gambling.
Here are some friendly reminders of the risks involved in investing during a pandemic:
Social media can be an inadequate resource for "tips."
If someone is pitching you an investment on social media that is too good to be true, it is most likely unreal. There has been tremendous growth in "educational videos" on social media that, in actuality, are for entertainment purposes. These videos also provide misinformation because those making the videos fall short of educating themselves on the topic. (Read our blog: Videos & Social Media Posts Are Not Financial Advice)
Do your due diligence.
Always research the investment by reading the investment vehicle's prospectus or a stock's quarterly/annual reports. Does this take time? Of course, it does, but what if the company or investment vehicle is not right for you? Perhaps the ETF you have invests in super complex financial contracts (derivative contracts), and you may not be aware. Or what if buried within their quarterly report is a phrase that may cause the price to drop. You'd be surprised at how many investors do not read what is in the company filings or prospectuses.
Consider your risk tolerance.
You may be taking on a more considerable risk that you may not be able to tolerate if the market begins to get volatile (think of wild zig-zags or wild ups and downs). Manage your risk by diversifying your portfolio by not putting all your money in just one stock or investment. Think of diversification as having a cushion when markets become volatile to "brace for the impact" of volatility. Also, consider mixing into your portfolio uncorrelated assets to help lower the risk exposure.
Set realistic expectations.
Don't expect to get wealthy or expect a large return immediately. When you wish this, and it doesn't come true, you begin to make wrong decisions and sell at the wrong time. Again, if it is too good to be true, it is mostly unrealistic. The stock market is not a place where you bet and hope that it goes up immediately. By having this mentality, you are speculating rather than investing.
Don't time the markets.
Speculators time the market, and they do sometimes end up getting it wrong. Don't time the market - see also numbers 4 & 6. Research has shown that retail investors time the market by selling or buying at the wrong time. Retail investors sell when the market drops out of fear of losing everything and buy when the market is high, thinking that the market will always keep going up.
Consider your time horizon.
If you invest your hard-earned money, have a long-term view. A longer-term investment has a higher probability of having a positive return when it works in conjunction with a diversified portfolio. If you want to invest in the shorter term, consider your risk tolerance may be more conservative. If you are more conservative, investing in equity investments may not be adequate for your portfolio and should have lower exposure.
If investing was easy to generate profits daily, then everyone would be doing it. Remember, investing is tied to many risk factors such as economic, political, business, and systematic market risks. If you do not understand the nature of investing, don't do it, and risk losing your money - educate yourself. Be cautious at the sources of the information. Do not get into sophisticated investment vehicles such as options, margin, futures, cryptocurrencies, or forex (foreign exchange), and even penny stocks if you cannot understand it. Just because one of your friends is doing it may be best not to follow the trend before learning a bit more about it.
If you do not have time to do any of this, consider seeking help from a professional financial advisor who can help you with your finances and help you reach your financial goals during these unprecedented times. Remember, it is their profession, and it may be best to seek the help of someone who has had the experience and knows how to explain the concepts to you.
You've worked hard for your money. Why not invest smarter and make your money work harder for you?
Investment Review Checklist (Free PDF Download)
Use this checklist to give you a sense of what issues you should be reviewing.