The coronavirus has undoubtedly had a devastating financial effect, both for the economy and for millions of individual American families. But amid all the bad news, there's one small piece of good news: The pandemic may prompt more people to start investing.
And as long as people are doing that wisely, that's a great thing -- it could enable more people than ever to build wealth that will help to see them through the next crisis and give them the financial security they deserve.
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Millions of Americans may become investors due to COVID-19
As Americans have begun to focus more on their finances during these turbulent economic times, around one in five have indicated they're likely to invest more money in the stock market now, according to Charles Schwab's modern wealth survey. The same survey also revealed that 22% of Americans indicate they're more likely to start investing for the first time during the COVID-19 crisis and resulting economic recession.
Clearly, for millions of Americans, the crisis was a wake-up call that has them considering jumping into the market. After all, when the economy was good and unemployment was at record lows, it was easy to assume your job would always be there and you could always save and invest for the future later. But during a public health crisis and economic depression, financial worries have come to the forefront, underscoring the need to build more economic security.
For others, the market volatility surrounding the great lockdown and the recession has presented an ideal buying opportunity for stocks. After all, volatile markets often make it possible to buy shares on sale during temporary downturns. When the inevitable recovery arrives, astute investors who put more money into the market during corrections will often see impressive returns. Those who considered increasing the amount they're investing during the last few turbulent months were likely hoping to capitalize on this.
Of course, not everyone was eager to jump into either investing for the first time or increasing their investments. Schwab's survey also revealed around 30% of Americans are apprehensive about investing. This is normal, and it's not a bad thing to be cautious -- but overcoming those worries by becoming an educated investor is essential to build wealth.
Should you increase the amount you're investing?
With the country still in a recession and the number of COVID-19 cases continuing to rise nationwide, the opportunity to make a smart financial choice amid the economic, social, and political chaos may not be over. But if you're thinking about either starting to invest for the first time or upping your stake, it's important you do so responsibly.
First and foremost, you shouldn't invest money you'll need in the next few years, and you shouldn't be investing if you don't have an emergency fund. If you invest with too short a timeline or without liquid cash to see you through a crisis, you could be forced to sell investments at a loss in the event of another market crash because you need the money.
You should also make sure you have a sound investment strategy. Volatility can make investors nervous if they aren't confident in the stocks they've purchased, and fear can lead to rash investment choices that end up causing you to lose money.
Aiming to make a quick buck by buying and selling as the market goes up and down on a daily or weekly basis can also set you up for disaster, as very few investors are good enough at day-trading to turn a profit over the long-term.
But if you have the money available, you can leave it invested for a few years, and you have made informed choices about what stocks to buy, then now may be the perfect time to start investing, or to increase the cash you're putting into the market during this period of unprecedented market turmoil.
