How to Take Advantage of Market Volatility Due to the Coronavirus

Posted on April 30, 2020 by Trevor Shakiba

Don’t forget to watch Trevor’s video on this subject!

Because of the spread of COVID-19, many parts of the country have had to shut down (which brought the economy to a grinding halt). The recent crisis has left many businesses and investors in a precarious situation, as the stock market plunged in a matter of weeks. You might be wondering how you can continue to make money during this crisis, but you can come out ahead over the long term if you get more strategic about your investing.

Here are some ways you can take advantage of the recent market volatility due to the coronavirus.

Tip 1: Make Sure You Have Solidified Your Financial Position

Crisis or no crisis, it’s always a good idea to have at least six months of cash reserves that will cover your expenses. But most importantly, you want to have a steady cash flow. You should also think about refinancing any loans or mortgages that you’re still repaying.  Interest rates have fallen to historically low levels and might provide an opportunity to free up cash flow or pay more on the principal balance.

Tip 2: Keep Doing What You Have Already Been Doing

The best way to take advantage of this bear market is to keep saving, so don’t stop doing what you are already doing! And when it comes to investing and retirement accounts, you should take advantage of whats called “dollar cost averaging”. This strategy simply means you save the same amount in every paycheck whether the market is up or down, thereby buying more shares when the market is down and less when it eventually recovers.  Dollar cost averaging reduces your risk and takes the guessing game out of investing altogether.

Tip 3: Rebalance to a More Aggressive Allocation

Rebalancing is another easy strategy to implement when the market is volatility.  Everyone has heard of “buying low and selling high” and aims to do this!  Unfortunately, it is much easier said than done.  By rebalancing when the market is down you sell your bond and cash positions and then increase your equity funds.  So, if you currently have a 60/40 mix of equities to bonds you may consider reallocating to an 80/20 mix and positioning yourself more aggressively when the market eventually recovers.

Tip 4: Put Additional Discretionary Cash to Work

As I said above everyone must have an adequate cash reserve, so Do Not liquidate your reserves to invest. That is not what I’m talking about here!  These are funds above and beyond your emergency fund, which you could then invest into the market.  My recommendation here is to simply buy the market through a diversified index fund.  Make sure you also pay attention to tax efficiency if the funds are in an after-tax account.

Tip 5: Let’s Talk About Oil!

Finally, let’s talk about oil!  For the month of May the oil contract actually went negative!  Although this presents a unique opportunity I would strongly recommend speculating on oil through futures contracts or leveraged ETFs.  The best strategy is to invest in great companies with good balance sheets which will be here over the long term. Oil companies got hit hard, but as demand returns their stock prices will also recover.

Remember that investing is about growing your money with the right balance of risk and return. So, if you need more advice on what to do with your investments during this crazy time, be sure to get in touch with Shakiba Capital.  We are offering a new way to invest!