Experienced investors expect the global market to vary day to day, but the slump caused by the COVID-19 pandemic could be a different story. Times are hard and likely to get worse over the next few months as countries struggle with the contagion and its depressing effect on business, trade, investments – and interest rates.
If you have investments that contribute to your retirement income, you could be worried right now. What should you do to mitigate a very bad situation? No-one can predict the future with certainty, but we can examine past crises and learn from others’ mistakes.
The general advice? Sit tight.
What history teaches us
Looking at 200 years of investment and stock market behaviour, you’ll see huge events – two World Wars, the Great Depression, even the US Civil War – all had an impact on the stock market. Yet investments over the same time-span averaged 6 to 7% in returns, even counting the lows through those devastating times.
Right now the mood is very dark, with plenty of people predicting serious economic consequences from COVID-19. Remember, this has all happened before – Brexit, Greece, the US budget shutdown in 2013. A dramatic case in point was Germany after WWII – its economy fell by 90%. All these countries recovered, and Germany was delivering 30% gains per year from 1948 onward. Investors who stayed the distance were the winners in the long run.
Don’t listen to the doom merchants
The mainstream media love a crisis. The bleaker the future, the better. Why? Because it’s all drama, and that sells advertising.
Financial brokers like a crisis too. They get paid commission for every transaction, and a whole lot of panic-trading means money in the bank.
Don’t listen to any of them. Turn off those news alerts on your phone, go make a cup of tea (or something stronger) and wait out the crisis. It’s less exciting, but pays way better dividends.
Who buys when you sell?
A financial crisis involves falling interest rates and panic-selling, but who buys those hurriedly-sold investments? Someone is waiting to snap up any cheap-as-chips shares that you off-load. One conspiracy theory says the really big players engineer financial crises, just to buy up stock at rock-bottom prices.
They may not have created a global pandemic just to get richer, but you’ll still benefit them by selling out. It’s understandable to be frightened about the future, but if you can hang on to your investment, tighten your belt and ride the storm, you’ll come out better off.
Do nothing – and win
Learn from history, ignore the drama, and hang on to your investments. Do nothing – you’ll win in the long run.