While much of the country seems to be emerging from the massive lockdown that ensued for April and May, health officials warn that we're not out of the woods with regard to COVID-19. In fact, health experts have said repeatedly that a second wave is likely, if not inevitable, and that we need to not only reopen with caution, but gear up mentally and financially for that distinct possibility.
When the first wave of COVID-19 cases hit back in March, the stock market reacted almost immediately, plunging deep into bear market territory by mid-month. Since then, stocks have largely recouped a substantial amount of value, but if a second COVID-19 wave were to hit, it could send stock values plummeting once again. And that's a scary thought if you're thinking of putting some money into the market right now.
But should fears of another downturn fueled by COVID-19 stop you from investing? Or should you find a way to move past them?
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Invest now -- but only under the right circumstances
While stock values, as mentioned, have recovered substantially since they reached a low back in March, they're also not as inflated as they were back in February. As such, now's actually a pretty good time to pump some money into the stock market, especially if you've been managing to save more than ever during the pandemic.
While many Americans are, unfortunately, struggling financially right now due to job loss or reduced hours at work, the other side of the coin is that those who have managed to stay employed since March may be spending less than ever. Many workers aren't commuting, aren't paying for entertainment outside the home, and aren't taking the vacations they normally would. As such, it's fair to say that some people have the financial means to invest right now, and the fact that many stocks can still be snagged at a relative discount is an unquestionable draw.
But what about that second wave? What if the stock market crumbles again, and the stocks you buy in the coming weeks lose 20% of their value or more in a matter of days?
While that's a frightening thought, the one thing you must keep in mind is that you don't lose money in a stock market downturn unless you cash out investments at a loss. If you buy $1,000 worth of stock today that drops in value to $500, but you don't sell when that stock is down, you don't lose $500. Therefore, you shouldn't let fears of a second COVID-19 wave stop you from investing as long as your plan is to stay invested for the long haul.
In fact, even in non-pandemic times, a general rule to follow is to not invest money you expect to need within seven years (some financial gurus will even say 10 years). The logic there is that if you don't plan to use the money you're investing anytime soon, you'll be in a strong position to keep your portfolio intact and wait out downturns that might ensue. Therefore, if you have a fully loaded emergency fund -- one with enough money to cover a good six months' worth of bills that could get you through a recession -- and you have extra cash on hand, you should feel reasonably comfortable using it to buy stocks, even with the knowledge that the market could tank again, and soon.
Incidentally, even if the market does crash during a second wave of COVID-19 this year, positive news about the pandemic could turn things around rather quickly. For example, if there's a second wave of cases in October that causes an immediate plunge, but a vaccine is approved in February, that turn of events could make for a serious market rally.
Ultimately, though, without a crystal ball, it's impossible to map out a timeline for COVID-19, and it's also hard to say exactly what impact pandemic-related news will have on the stock market. Your best bet, therefore, may be to forge forward with your investing plans knowing full well that there could be another massive slide in the not-so-distant future. If you mentally prepare for that possibility and make sure you're set on near-term savings before investing, you'll be in a solid position to ride out whatever storm might ensue.
