The coronavirus has affected nearly every aspect of American society, and even those who are fortunate enough to have not been affected from a health perspective have likely seen their finances take a hit due to COVID-19. The virus has wreaked havoc on the stock market, causing many workers' retirement funds to plummet essentially overnight.
This can be concerning even to those who are nowhere near retirement, and understandably, many Americans are nervous about investing. However, right now is actually an excellent time to invest in the stock market.
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Recessions are prime investing opportunities
Nearly two-thirds of Americans are concerned a major recession is coming, according to a recent survey from Allianz. In addition, approximately 41% of survey respondents say they're too nervous to invest in the stock market right now, up from 35% at the end of 2019.
The stock market can be intimidating whether we're in the middle of a recession or the economy is booming. Because there's always some degree of risk involved when investing in the stock market, it can be nerve-wracking to put your financial future on the line. However, investing is one of the best ways to build long-term wealth, and investing during a recession can be even more fruitful.
When the market is down, stock prices are at their lowest. That's a good thing in one way, because it allows you to buy when stocks are essentially on sale. Everyone wants to buy low and sell high, so right now is your chance to buy low. The market will bounce back on its own, and during that time stock prices will increase. By the time you're ready to retire, your investments will likely be worth significantly more.
If you stop investing now (or worse, pull your money out of the stock market altogether), you're missing out on the chance to reap the rewards of the market's recovery. Again, the market will recover given enough time. If you press pause on investing until the economy is booming again, you'll miss out on these bargain stock prices.
How much should you be investing right now?
While right now is a great opportunity to invest, exactly how much you should invest depends on your personal situation.
As a general rule, you shouldn't put any money into the stock market that you think you may need in the foreseeable future. It's best to leave your investments alone for as long as possible, so if your finances are shaky right now, it might be a good idea to work on building up your emergency fund before you invest all your extra cash.
If you've already built a healthy emergency fund and have some extra cash to invest, the next step is figuring out how much you should contribute to your retirement fund. If you have access to a 401(k) that offers employer matching contributions, aim to invest at least enough to earn the full match. Matching contributions are basically free money, and you can potentially double your retirement contributions by taking full advantage of them.
These are uncertain times, and it can be concerning to see the stock market in a free fall. But remember that no matter how dark things may look now, the economy -- and your investments -- will recover. The silver lining is that by investing when the market is down, your gains will be even more significant down the road.
