Anyone who lived through the financial crisis of 2008 and 2009 knows that the turmoil during that period presented a fantastic opportunity to buy stocks. Not everyone realized it at the time, though. There was a lot of fear and trepidation about what could happen next.
It's a similar story today. Most investors probably realize that the stock market crash caused by the coronavirus pandemic will in retrospect be one of the best opportunities to buy stocks in a generation. But that still doesn't make it easy. As was the case during the financial crisis more than a decade ago, no one knows for sure what might happen next.
Should you really buy stocks now? Would it be smarter to wait a while longer? Here are the answers to those pressing questions.
Known knowns and unknowns
Whatever you think about former Secretary of Defense Donald Rumsfeld, he said something in 2002 that I think is applicable to what's going on now. Rumsfeld stated, "There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know."
What are the known knowns for investors? One is that we know the U.S. hasn't seen the worst yet in terms of COVID-19 cases. Based on the experiences of other countries that were hit by the coronavirus outbreak earlier, the next month or two could bring more bad news than good news.
But, more importantly, we also know that the challenges are temporary. The numbers of new COVID-19 cases in China have dwindled. That will happen in the U.S. also. The economy will bounce back once the fears about the pandemic subside.
However, there are known unknowns. We don't know, for example, exactly how long it will take for the wave of COVID-19 diagnoses to diminish. We don't know how much a government stimulus package will help. And no one knows for sure if the stock market will continue fall and, if so, by how much.
Now or later?
All of that might seem confusing, but I think it's helpful in answering the question of whether or not you should buy stocks now or wait a while. Actually, my view is that considering the known knowns and unknowns should give investors confidence in making the right decision.
Based on the known knowns, buying stocks right now is a good idea for investors with a long-term perspective. Knowing that the U.S. and global economies will rebound should allow you to buy stocks and feel good that you'll make solid returns over the next decade.
On the other hand, those known unknowns make it apparent that keeping some cash on the sidelines to invest later is also a prudent move. We don't know how long the coronavirus crisis will last or how much more the stock market might decline. Having money to buy stocks at potentially even cheaper prices makes sense.
The right answer to the question, therefore, of should you really buy stocks now or wait a while longer is "do both." Stagger your investments over the next several weeks and months. This approach should improve your chances of winning over the long run.
An even more important question
But there's an even more important question that investors should be asking: Which stocks should I buy? I think there's a nuanced answer to this question.
If you're retired, probably the best course of action is to buy dividend stocks that now have much juicier yields thanks to the stock market crash. AbbVie (ABBV -0.47%) is one of my favorite dividend stocks to buy right now. Its dividend yield stands at a mouth-watering 6.6%. The company has lost close to one-fourth of its market cap during the stock market sell-off, but patients will need its drugs regardless of what happens with the COVID-19 pandemic.
A lot of investors are looking for dirt cheap bargain stocks to buy. You can get both a bargain and a sky-high dividend yield with Enterprise Products Partners (EPD -0.04%). Shares of the midstream energy company have plunged more than 50%, driving its dividend yield to a sky-high 12.3%. It could take a while for the stock to recover, though. Oil and gas stocks have fallen because of an oil price war in addition to the coronavirus outbreak. However, for long-term investors, Enterprise Products Partners looks like a steal right now.
My favorite approach is to incrementally buy shares of stocks with tremendous growth prospects that are now cheaper than they've been in a while. I really like Guardant Health (GH 7.89%). The stock has fallen more than 25%. But the company's liquid biopsy products have a massive opportunity in diagnosing cancer at early stages and monitoring for cancer recurrence.
Those are just a few examples of stocks that should be smart long-term picks. Invest some of your money now, more of it in a couple of weeks, and then continue to buy over the next few months. As was the case in 2008 and 2009, fortunes will be made as a result of the opportunity investors will have during the current crisis.