How to Take Advantage of the Plummeting Stock Market
The best things to do with your money right now
First and foremost, don’t panic and do not take your money out of the stock market. I cannot emphasize this enough. The market is cyclical and the downward trend is only temporary, it’s best to think long term rather than short term. Panic selling will only result in you decreasing the value of your hard-earned money. If you don’t sell your stocks then you haven’t technically lost any money. There are still plenty of opportunities for the stock market to turn around and the value of your investments to be restored, so just be patient.
Now that that’s out of the way, let’s focus on the best strategies for taking advantage of the current situation and investing wisely.
Do your research and know your risk tolerance
Investing is pretty straightforward with the idea that the more risk you take on, typically the higher your potential return is. You need to think about what the best option is for you. If you prefer lower risk than you can opt to invest in a certificate of deposit, or CD, through your bank. A CD comes with very minimal risk but a low yield, still a good option for those looking to invest safely.
If you’re looking to increase the risk — and the potential return, then you can look into investing in the stock market or mutual funds. Stocks have a great record, returning on average 10% annually, but they are also well known for their volatility, as we can see by recent events. Finding out what works best for your risk tolerance, and setting expectations, is key. You often can’t have low risk and high returns, and understanding that is paramount so you don’t get disappointed by your outcome.
Research is another large and critical component when it comes to investing. You need to have a clear understanding of what you are doing with your money before you do it, that way you can limit the possibility of losing your money as much as possible. Whether it’s researching what area of investment works best for you, or researching individual companies before investing in their stocks, research must be done. If you want to invest correctly then you need to be willing to put in the time before beginning.
Taking advantage of the stock market
The stock market plummeting brings with it a decreased cost for many stocks. Essentially, now is the best time to invest. The idea is to buy low and sell high, therefore maximizing your profit. You can never know exactly when the stock market will hit the low or high before turning in the opposite direction, so you just have to take your best-educated guess. One thing I can say for certain, right now is a great time to invest because the stock market hasn’t plummeted this low in years.
“The best chance to deploy capital is when things are going down.” — Warren Buffett
There are several options when it comes to investing in the stock market:
Growth stocks, investments in individual companies (typically startup tech companies) offer high growth and return potential. These are a suitable option for those looking for true hands-on high risk investing. This type of investment requires an in-depth analysis of each potential company along with the understanding that these types of stocks are risky and can plummet. Due to their volatility it is best to plan on keeping your money invested for a minimum of 3–5 years.
Another great option is investing in stock funds in the form of a mutual fund or an ETF. These options are less risky than growth stocks and require less of a time commitment, perfect for an investor that is still looking to retain some risk but doesn’t want to make investing a full-time hobby. Essentially, these are broadly diversified funds, where you are investing in multiple companies rather than individual ones. It is important to note that even though this form of investing has less risk it can still move 30% in either direction in a given year.
One other option to consider is setting up a Robo-advisor portfolio. This option is well suited for beginner investors who don’t have that much time to dedicate to the practice. All you have to do is fill out a few questionnaires outlining your risk tolerance, goals, and time allowance, and then the Robo-advisor will do the rest and invest in the right options for you. This does come with a management fee, typically around .25 percent annually.
Final Remarks
Investing is one of the best ways to build wealth over time, and the wide array of options available enables you to invest however aggressively or conservative you see fit. There are many options for where and how to invest your money and you can be as hands-on or as hands-off as you want. Do some research and get to investing, let your goal for 2020 be to have your money working for you.
