Amid this market turbulence, just 6% of investors are making a smart move. According to a recent survey conducted by Principal, that's the percentage of people who plan to increase the amount they're investing while the market goes through this bumpy period.
Why investing more now is a smart move
While coronavirus sent the market crashing in March, April and May saw stocks rally. Stocks were on a bumpy ride in June, soaring at the start of the month but taking a dive as coronavirus cases started spiking nationwide and states began rolling back their plans to reopen.
While June's positive job numbers have sent the market higher at the start of July, the fact remains that the country is in a recession and public health experts are warning things may get much worse. If that happens, another market crash could be just around the corner.
With that fear in mind, you may be tempted to sit on the sidelines because you don't want to sustain losses. The reality, however, is that recessions and market corrections generally provide unique buying opportunities that give you the chance to pick up stock shares at bargain prices so you can maximize your returns. In fact, one of the world's best investors, Warren Buffett, has advised being "fearful when others are greedy and greedy when others are fearful."
Of course, you may be tempted to sit on the sidelines not because you're afraid of investing during turbulent times, but because you're hoping to buy at rock bottom after another crash actually happens. Unfortunately, no one can predict when that will occur, and if you wait for it, you may miss out on good buying opportunities that exist right now.
Investing more isn't right for everyone, though
Investing during a recession can help you maximize your returns, but it's not the right approach for everyone. Obviously, some people don't have any spare money to boost their investing right now, given their current financial situation.
In addition, you shouldn't start putting your money into the market if:
- You don't have a sound investing strategy. You should only invest in things you understand and should make sure you're confident in your choices, so you won't be tempted to react and panic sell if things start to look rough.
- You don't have an emergency fund. During a recession, it's more important than ever to have cash saved for emergencies, so you don't have to borrow and pay interest or raid your investment accounts, potentially selling at a loss to cover your short-term needs.
- You don't want to commit to leave your money invested for several years: While investing in a recession can maximize long-term gains, it can also lead to short-term losses. Unless you can leave your money invested for at least a few years to wait out any downturn, don't invest it.
Consider putting more money into the market if you can
If you've got your basic needs met and are prepared to invest wisely and wait out any potential downturns, you can often earn great returns by investing in a volatile market.
And while there's always a risk associated with any investment, long-term investors who have made the smart choice to pick up extra shares during a recession will usually be glad for it in the future.