When COVID-19 first took hold in the U.S., stocks reacted almost instantly, plunging deep into bear market territory for the first time in over a decade. The market has recovered since then, but given that we're in a recession and that the pandemic is far from over, there's a good chance we'll reach a point in the latter part of 2020 when stocks react strongly again. Knowing how to cope with volatility is an important part of avoiding losses during this already rocky time.
Unfortunately, a large number of Americans may be setting themselves up for failure in this regard. A good 40% of people have started checking financial markets more frequently since the COVID-19 crisis began, according to a new Personal Capital survey. And now, 32% say they check the market daily.
Of course, keeping tabs on the stock market is a smart thing to do, but checking up on your investments obsessively is a completely different story. And if you don't break that habit, you could be in line for serious losses in the coming months.
To invest during a recession, the right attitude is crucial
If there's anything you should expect out of 2020, it's volatility and unpleasant surprises -- and that applies to the stock market, as well. Therefore, if you're going to invest this year, be prepared for a wild ride. But also, prepare to take a step back and let things play out.
If you check up on your investments too frequently, you may be more likely to panic when you see several days of consecutive losses, and panic could lead you to do a very dangerous thing: selling off investments when they're down.
One thing it's so easy to forget in the course of investing is that you only lose money on stocks when you actually sell them at a price that's less than what you paid for them. If you sit tight when your portfolio value plummets and wait things out, you can avoid losses completely.
To be fair, checking up on the market daily doesn't automatically mean you're going to do something foolish, like dump investments for no good reason. But the more frequently you look at your portfolio, the more likely you are to react.
A better bet, therefore, is to check up on your investments monthly rather than weekly. If you're set on emergency savings and aren't reliant on your investments to pay immediate bills (which you really shouldn't be), then there's no need to worry about whether your portfolio grew from day to day or took a hit.
That said, there may be one exception. If you have money you're looking to invest during the pandemic, then it could pay to check the market frequently for deals. But even that strategy is risky, as many studies have proven that timing the market just doesn't work and you're better off putting money into stocks consistently rather than waiting for just the right moment.
But don't go to the opposite extreme, either
While 32% of people say they check the market every day, 11% say they never check in at all. That's not a great strategy, either. Being clueless about how the market is doing isn't a smart bet, and you really should have some idea how your investments are performing.
The key is to strike a good balance so that you're in the loop without putting yourself in a position to succumb to panic.