The Impact Of the Coronavirus on Markets and Sentiment
Although indices around the globe are staging a recovery this week, March has been a markedly painful month for investors. The escalating coronavirus spread has taken a heavy toll on stocks and commodities. Even traditional safe havens have seen painful declines as market participants have been liquidating positions amid the pandemic-induced chaos.
Wiping out trillions of dollars from capital markets just for several weeks, the downturn sparked anxiety among investors who had recently been enjoying steep gains during the biggest stock market uptrend in history. Even though a number of the major indices have already entered into a bear market territory, investors should not lose hope. This sell-off should be rather viewed as a good opportunity to make some solid profits in аthe long-run.
Why It Is Time to Start Building Your Investment Strategy
Markets have been really volatile in the past weeks. And rapid moves are probably here to stay for some time. This does not necessarily mean that it is a bad moment to start building an investment strategy. Making money is not about buying at the bottom and selling at the peak; it is about gauging your risk tolerance and putting your money to work in your favor, rather than passively awaiting an income from interest, which is not even going to cover you for the annual inflation.
The Strategy Guidelines
Our team of professionals has provided you with some key guidelines on how to take advantage of the current market state:
- Do not trade, but INVEST: the moment is not suitable for high-leveraged short-term trades, as the abnormal volatility promises to turn your short-term positions into long-term ones, and this poses the risk of a complete wipe-out of your account. We recommend opening positions with no or low leverage, with an investment horizon longer than a year.
- DIVERSIFY: never ever put all your funds on a single asset! Instead, consider buying stocks from different sectors and countries, commodities serving different purposes and precious metals; the latter will make your portfolio more balanced in times of financial distress. Some ETF-s are a pretty good option for those of you who really look for diversified exposure to certain markets.
- Keep your cash apart from your investments: the separation of the cash for everyday needs from the money for investments is an important rule, which should be broken in no circumstances. After all, the idea behind an investment is to lock some funds for a longer period of time, which is impossible if you need them for food and clothes, for example. Apart from that, it is always wise to have savings for a period of 3-6 months during a crisis, because you can never be sure about the lay off plans of the company you are working in.
- Invest gradually – put a fixed amount of money regularly into the assets of your choice over a long period of time. A good way to approach this is by saving part of your salary every month exclusively for this purpose. This would give you the chance to purchase higher volumes when the instrument is relatively cheap and less when the price is not that favorable.
It is true that the coronavirus has been spreading really rapidly and has demonstrated some nasty resilience, which has made the World Health Organization name the disease a pandemic. It is also true that the lockdowns imposed by various countries in their fight against the invisible enemy have severely bruised the global economy. But let us face it – the coronavirus is not here to kill the human race; it is not the first instance of a public health emergency, either. Some companies have already gone bankrupt, and even more are going to follow. At the end of all this, however, the global economy will start healing rapidly with only the healthy businesses surviving. In this context, the current capital market pullback would provide an excellent buying opportunity.