Recently the corona virus or COVID-19 is ravaging the stock market, so now is a great time to look at recession proofing your investments going forward. Just as of writing this the stock market when opening plunged 2,100 points. Now this maybe a bit scary for most people, but do not let your fears and emotions take over when investing. That is probably rule number 1 when doing anything with investing. The best thing to do as of right now, is to remain calm and actually buy more stocks.
Now no one can predict when the market will bottom out and end its losing spree; however, the market is at new lows and this is a great time to buy. But the question is what to buy and when to buy it, and what is the best thing to do to recession proof your investments?
Do not try to catch a falling knife:
Don’t try to time the market and think that there is a bottom. While there will be a bottom at some point, but no one can ever really predict where that bottom will be. Just buy a bit at a time along the way down, basically dollar cost averaging it as it goes down.
So what would it look like if you are doing it correctly? Lets say you want to invest $1,000 right now, right now you should not buy whole thing in one shot, instead you should buy in increments. $250 at $50, another $250 at $45, etc. Or you can buy $500 today another $500 two weeks from now. Whatever you decide, the key here is that you have a system in place that you stick to no matter what happens. Everything is moving way too fast to make decisions during market hours.
Upping your 401K contribution:
Right now is the perfect time to up your 401k contributions. Even if its just a little bit. During this time a little bit will go a long way when the market does recover. Depending on your age, you will more than likely see those gains in the long run. Again what you are doing with your 401k is dollar cost averaging. You should buy while it goes down and while it goes up.
Normally what I like to do is buy until it gets back to the levels it was at before it dropped. Once prices are there I readjust my 401k contributions to what they were before. So in this example, I keep my contributions around 10-15 % I have now upped my contributions to 20 % and of course there is my company’s match which is quite a good amount.
Also this should go without say but only up your contribution if you can afford to. If all you can afford is what you are currently contributing, than that is great leave it as it and continue working on being able to in the future contribute more.
As an example, if you have any major credit card debit, I would keep 401k contributions flat and focus on paying off debt. I would not fear on what you may miss out on and focus on getting rid of that debt. If you want some ways to get out of debt check out this article.
Remain Steady and don’t move investments:
While it maybe temping to sell everything, run and hide under a rock: DON’T. Do not sell right now in a panic, because the losses right now are only on paper. Meaning if you don’t sell you don’t take the losses. Right now everyone should just wait for the dust to settle before moving any investments.
On the opposite end of the spectrum, now is a great time to add some good paying dividend stock to your portfolio for a cheaper price, thus increasing your gains with dividends and stock price once everything goes back up.
Recession Proofing Your Investments Final Thoughts
So how exactly do you recession proof your investments now going forward? As of right now the steps I would follow are:
- Wait for dust to settle before making big moves. Don’t panic everything will be okay.
- Maintain a well diversified portfolio meaning don’t panic sell all your stocks and horde cash. Just continue to diversify your portfolio with now cheaper stocks.
- Dollar cost average stocks and mutual funds. As mentioned above don’t try to catch a falling knife just buy at different time and wait this thing out.
For the most part your life should stay as it is. It is great to keep your eye on the market and what is going on to be a knowledgeable investor, but its not good to panic and try to move your money at this moment. For most people this will be a wake up call they need to reassess their investments for the long term. Right now the damage has been done for must people. If you wait this out and slowly make changes to recession proof your investments for the future you will come out ahead in the long run.
Remember always invest only what you can afford to lose, invest for the long term. May in about 2-3 years we will all look back on this and just see it was a great time to buy stocks and many people due to fear will either lose out on great potential gains, and or more than likely lose out on potential gains and take huge hits to their portfolios.
I am not sure who said the following: “The bull walks up the stairs and the bear jumps out the window” but they could not be more correct in their assessment.