Unless you haven’t turned on your TV in the last few months or tuned into any form of media whatsoever, you will know all too well that global stock markets have been decimated. We have only started to see the effects of the coronavirus on the economy with stock markets around the world showing historically low levels. The Central European stock market plunged mid-March and the Hungarian forint reported historic low tradings a few days later. This has happened primarily as a result of the COVID-19 disruption within the global economy, and when catastrophes like this happen, stock markets tend to get hit pretty hard.
The last few weeks have been fairly turbulent all over the world, especially for major markets like the S&P 500 and NASDAQ, and investors are split as to what will happen next. This basically begs the question, should you invest in the USA stock market right now or completely avoid it?
In general, when the prices and subsequent profits are constantly going up, investors seem to think that this will last forever. This has been the case not at least regarding the European gaming industry during 2019 when investments in gaming shares reached the attention of mainstream investors. Gaming operators like William Hill and others are now faced with major drops as sporting events have been cancelled due to the coronavirus. With no live events, there will for sure be long term consequences for the betting industry unless they quickly manage to adjust their markets and recover their losses. However, when things are going badly for a specific industry, investors think that things will be bad forever, or at least for a very long time, making it more difficult for the shares to recover. This is how it has always been with the stock market for anyone who ever knew how to buy shares, but you need to read between the lines to fully understand it.
Simply put, when stock markets have gone on a long bull-run and they are hitting all-time highs, this is the time of maximum risk. When the stock markets have plummeted and everything is going bad, this is the time where you can pick up bargains, and it is actually the time of maximum potential.
Let’s take a look at the US S&P 500 index to explain. If you look at the 6-month performance of the index, the market fell by a little over 25% at the worst of this crisis, and it has since recovered to almost the 0% mark. This, of course, shows a rapid decline but also rapid recovery. So, the only question is, are we now on the home straight?
This is where investors are torn, as many say that the market could fall further if we get a second wave of coronavirus. We don’t pretend to be investment gurus, but there is one strategy that has always proved to be effective over time.
When you invest in index funds, you are effectively owning a share of the entire market as opposed to just shares in individual stocks.
This means that if the market was to go up 9% in a year, your portfolio will increase in value by 9% as it mimics the market. This is the number one value investing strategy of all time, as promoted by successful investors like Warren Buffett.
There was also something that we would like to bring to your attention from these investment gurus. They all say the same thing – being out of the market is the biggest risk that you could possibly take. So if that was the case, you would think that now is the perfect time to invest while prices are low, as the stock market historically always increases to all-time highs following a bear market.
For this reason, while your heart may say to avoid the stock market at all costs right now, by following the advice of these guys, it would seem logical to invest now.
At the time of writing, it would seem that the stock market has somewhat recovered from the initial impact of COVID-19. There are still uncertain times ahead however, for we do not know if a second wave could hit, and we do not know yet what the ongoing economic impact could be. It will all depend on how quickly economies can be stimulated by the various governments, as well as how rapidly companies can get back in operation.
The optimists in the investment world will say that we are now through the worse and that the stock market will continue to climb.
The pessimists in the investment world will say that now is a very risky time to invest as the future is so uncertain. Then again, when is the future ever certain?
We encourage you to seek out your own investment advice before doing anything, and all we can do now is hold on to our hats while the stock market decides where it will go from here!