First the bushfires, now the Coronavirus…2020’s had a rougher ride than Britney Spears.
If the share market is anything to go by, it seems 2020 just can’t catch a break. First the impact of the bushfire crisis on Australia’s economy, and now the global disruption from the Coronavirus – anyone with investments may have noticed a big fat drop on their performance chart.
I invest small amounts regularly (currently $300 a month) into Raiz, and until a couple weeks ago, my performance had been going pretty swimmingly. It was far outperforming any interest I could’ve got at the bank, but then of course, it dropped.
What many people do in this situation is freak out and pull their investments. They’ve “lost money” and they don’t want to lose any more. But I’ll be leaving my investments firmly put, and perhaps even ramp up how much I’m putting in.
For two reasons.
- I invest small, regular amounts so I can take advantage of dollar cost averaging. That means by buying often, your purchase price varies with the peaks and troughs of the market. As a result, your average price per unit can be more favourable because by investing the same amount regularly, you sometimes get a higher volume of cheaper units, or a lower volume of more expensive units. Buying at these dips is critical to this strategy, because the shares are cheaper.
- My investments are made with surplus income that I’m happy not to touch for several years – even decades. Therefore, I’m comfortable with taking the risk that the market will recover, no matter if it takes 3 months or 3 years. The SARS outbreak in the early 00s caused worrying dips in the share market over several months, but they eventually recovered a few months later.
Should I stop investing or start investing?
All we have to go on in times like this is historical performance. Nobody can say what will happen, so if you’re looking for one clear answer on whether now is the time to start investing, stop investing, invest more, invest less, or keep everything as-is – you won’t find it.
Investing always carries risks, but you could minimise your risk by making sure the money you’re investing is truly money you won’t need for a while. It’s when you reach a point that you need to access the money you’ve got held in investments that you become a slave to the market. If you need to access that money during a downturn, you could lose money.
This market drop is a lesson to any investor, whether you’ve got $100 invested or $1million. Make sure you’ve got sufficient savings before you invest, and if you deplete your savings, pause your investments and focus on getting that back up before you invest again. This will allow you to ride out market cycles and allow your portfolio to recover – which is exactly what I’ll be doing.
Information contained in this article is general in nature, is not tailored to your circumstances and does not replace the advice of a qualified professional.
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