Sourced in part from CNBC Make It
Worried about what the global financial instability could mean for your money? We’re sure you are. Here’s a short list of the do and don’ts during these stormy times.
The Coronavirus has officially been declared a pandemic by the World Health Organization, bringing even more instability to the global economy. The stock markets are hitting lows not seen since the 1987 market crash, and hard-hit industries are beginning to lay off workers in large-scale numbers.
Health experts and governments around the world are urging caution, but it’s also crucial to be prepared for the outbreak to become worse. People across the country are stocking up on basic supplies in the event that they need to stay home from work for a prolonged period. Others are cancelling trips and foregoing conferences and sporting events.
With so much uncertainty still surrounding this pandemic, it’s natural to have some major financial concerns. If you’re worried about what all this instability could mean for your money, you might want to check out the following do and don’ts for the days and weeks to come.
First: Don’t Panic
Wanting to sell your entire stock holding in light of the market crash is an understandable, even natural, reaction. Especially when seeing the value of your portfolio plunge by tens or even hundreds of thousands of dollars. But reacting to the market with your mind, and not your heart is the sign of a true warrior investor. As challenging as it is, try to detach yourself from emotion and fear-driven decisions that will only lock in losses.
So long as your pressing financial needs are met, selling stocks after a massive market selloff is the worst thing you can do to your long-term financial health. The goal of investing is to buy low and sell high. By panic-selling, you’re doing the exact opposite.
Second: Increase Savings for A Rainy Day
By far, your top financial priority now should be ensuring that you have a sizable emergency fund. This becomes doubly important in countries that do not have mandated paid sick leave. If you get sick and miss work, or lose your job because of the Coronavirus, you’ll need money to fall back on: aim to put away three to six months’ worth of expenses in your savings account.
If you don’t have three to six months’ worth of expenses saved, then it’s time to make some sacrifices to increase your emergency fund. Start by making a list of all non-essential expenditures, including recurring subscriptions and memberships. Rank them in order of importance, then cut out the items ranked near the bottom of your list for a few weeks or months.
Third: Don’t Stray Away from Your Goals
The correct response to market downdrafts ultimately depends on you, your life stage, and what your financial priorities are.
In times of uncertainty, especially for those who have short-term financial goals, it makes sense to want to pause investing and instead keep your money in a “safer” place, like a savings account. But intermediate and long-term investors must overcome this impulse.
Your “time horizon” is also key. Someone in their 20s can afford to be a much more aggressive investor than someone in their 50s or 60s. Over time, higher-risk assets, namely stocks, have returned substantially more than guaranteed and low-risk assets, and it’s reasonable to assume that pattern will hold in the future, too.
If you have a long-term investing strategy- now’s the time to stick to it.
Fourth: We’re Sure You’ve Heard This One Before
If you’re considering staying active in the market, there’s one golden rule that you should always keep in mind while investing: Never invest money that you can’t afford to lose. Investing is important, but so is eating and keeping a roof over your head.
Fifth: Wash Your Hands
Ok, we admit that this one has nothing to do with your money (or at least we assume it doesn’t), but due to its importance, we crammed it in just to help get the message across. There’s only so much you can control in the midst of an ongoing event like the Coronavirus outbreak, so at least try to make your personal hygiene and continued diligence on washing your hands a top priority.