The coronavirus caused a massive disruption in the economy – not just in the United States but throughout the world. But no matter how bad things get, the rich always seems to get richer. People with a net worth of seven figures or more did something in March that was very different from what everyone else was doing. They were buying stocks and other investments, which may seem counter-intuitive. But instead of recoiling in the market based on fear, we should copy what they have already done so we can learn from it and come out even stronger when this crisis is over.
Here are some strategies that you should implement into your investment strategy, so you can survive the current financial crisis.
When the market goes down, everyone starts to panic. But it’s the last thing you should do if you want to be a successful investor. Instead of making investments based on fear and emotion, see it as an opportunity. The Dow went down to 6,600 in 2009, which is a far cry from where it is now. But there has never been a time when the market didn’t eventually recover. Ask yourself where the opportunities are. You will most likely be able to buy great companies at a cheaper price.
You Will Need to Act Eventually
There’s a massive amount of uncertainty and volatility in the market. But if you wait until there’s no uncertainty, you will miss the opportunities that can come from these times. Think about it from a logical, long-term perspective, and remember that optimism is the only realism. There has never been a period in history where the economy crashed and didn’t eventually recover. So, no matter how much uncertainty there is in the market, you will have to act eventually.
Put Additional Discretionary Cash to Work
Take a look at where we were. The Dow went up to 29,500 and was even pushing 30,000. But 30-45 days later, it dropped to 18,000. While it’s a devastating blow to the market, it was an opportunity to purchase some of the greatest companies in the world. And the sooner you get your money to work, the better. And remember that you will not receive dividends, typically 1/3 of an investor’s return, unless you are invested!
Take Advantage of the Most Powerful Investing Mechanism
Compound interest is the most powerful investment mechanism that has ever been used, but it doesn’t work if the money isn’t invested. What goes down must come up, and the same is true with interest rates. By putting more money into a Roth IRA, you can get tax-free compounded returns. And once the money is in this tax-free vehicle, it’s never taxed again. The same principle also applies to education savings in a 529 for example.
Consider Implementing a Roth Conversion Strategy
Taxable income might be down in 2020 because of Covid-19, but the market is on sale. So, you should think about converting part of your pre-tax IRA savings to a Roth IRA. Figure out how to get more of your wealth in a tax-free position, and this is the perfect time to do it!
For more advice about how you should invest your money during this financial crisis, be sure to get in touch with Trevor Shakiba and Shakiba Capital.