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The economic climate of 2020 has taken a sharp downturn, worse than what most would have imagined. In the event of COVID-19 and its repercussions on the market, we are experiencing a bear market not seen for several decades; and while human instinct warns us to run from bears, the canny investor now sees an opportunity to buy.
Should I wait for the market to bottom out?
Before we ask this question, we would need to counter it with another. How would you know when the market has bottomed out? Indeed, the market may have reached a bottom, but only hindsight will tell when the market has in fact bottomed out completely. The truth is, only one person will be able to experience buying at the bottom, and by that time, the dust may have settled on coronavirus and the market may have already begun to shift.
So herein lies the dilemma. Investors need to come to terms with the fact that, while there are currently many rare opportunities in equity markets, we cannot be sure if or when share prices will become a lot cheaper. Now is a crucial time for financial advice. While this year is a challenging one for many, for others it may present a huge opportunity. Bear markets are known to end unexpectedly, so it can be futile to try and pick the bottom of the market, knowing that this rare opportunity to create long term gains may be quickly lost.
The ultimate strategy would be to start with sound financial advice and a solid plan. It may also be prudent to only invest in products or shares that you truly would want to own over the long term. Many investments may present themselves as a bargain, when perhaps they were not all that strong of a company to begin with. Shares are relatively cheap at the moment, but not all of them will hold equal opportunity. As an alternate option Livewire suggests putting smaller amounts into strong companies that were operationally healthy before the hit of this bear market, those of which you consider are likely to exit out the other side unscathed and continue to return or grow earnings and shareholder value.
How do we navigate this bear market?
It may feel reassuring to invest when the market is steady and on the rise. However, perhaps the most profitable times to invest are typically the most nerve wracking. History shows that after a crash on the Australian Share market, shares can rebound between 30-80%. During such an uncertain time, it may be easy to forget your strategy and panic. It can be helpful to remember that while you cannot control a pandemic or a bear market that comes with it, you can focus on your own strategy and obtain solid financial advice from a trusted source.
Each day it seems we need to invent new habits and behaviours to adjust to an ever-changing world. While a situation like this brings challenges and obstacles, it also may present some valuable opportunities.
When investing at this time, you may need to consider that the value of the investment could take a bit of time to recover after this crisis, so a long-term strategy may need to be considered.
COVID-19 has brought many restrictions. Consider how these restrictions will impact different companies and sectors in different ways. The general view seems to be that we are experiencing a temporary disruption, however it is worth noting that we are living through an unprecedented time, where some of these disruptions may last longer than anticipated.
For example, Livewire states that it may be worth considering that global travel might keep a backseat for an extended period of time. There most certainly seems to be a drop in the popularity of cruise holidays. Disruptions to the property market may also result in a drop of house prices in the near future. All these types of considerations need to explored when devising an investment strategy.
A bear market may present a valuable opportunity once a situation like coronavirus has had its day. However, now is not the time to enter in without a plan. Speak to a financial adviser to establish a tailored strategy to meet your individual goals.
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