Monday, March 2, 2020

Coronavirus and Your Money


According to the media, we’re on the verge of a global pandemic. Last week, the stock market returned its worst week in over a decade. Is it time to get out before the inevitable collapse of the world’s financial markets?

When it comes to investing, I’m a bit of a contrarian. I look at a market downturn as a buying opportunity.

On Monday, my brokerage account was flush with cash as several of my positions had been called away on Friday. So, I went bargain shopping and quickly sold slightly-out-of-the-money covered calls on those new holdings.

I’d have paid less for those new stocks had I waited until Tuesday. And I’d have found even better prices if I’d waited until the end of the week.

Some investors might bail out and cut their losses. But I’m holding on.

If those stocks don’t hit my strike prices by expiration Friday, I’ll still own them and try to sell more calls for next month.

All the companies I invested in just released stellar earnings reports. They’ve been paying dividends consistently for years. They’re solid businesses. At this time, I believe their stock prices will recover.

When President Trump took office, the Dow Jones Industrial Average (the main gauge we use for the stock market) had not yet reached 20,000. Before the coronavirus hysteria, it was approaching 30,000. On Friday, it closed at 25,409, still much higher than it was four years ago.

Market corrections (a decline of at least 10%) are normal and healthy. If your 401k, IRA, or pension is invested in mutual funds, chances are you’re participating in the stock market (over 50% of America’s households are) whether you realize it or not. If the dividends are being reinvested in additional shares of the mutual fund, a correction allows you to buy more shares of the fund with each distribution. This is one of the benefits of “dollar-cost averaging.”

The stock market was due for a correction and the coronavirus provided an excuse.

Even though I advise against panic selling, I think a large market downturn or correction should serve as a reminder to review your portfolio. Is your asset allocation on track for your age and risk tolerance? Are your investments diversified enough?

If there’s a stock you’ve been eyeing but it’s been too expensive, now might be the time to buy. But first, do some research. Are the fundamentals still good? How will the coronavirus affect its business going forward? If it looks like the price will continue to fall, maybe you should wait.

If you’re overweight in a stock that could be adversely affected, you might want to set a stop loss or limit order to sell. Any losses will help to offset gains elsewhere when tax time comes around.

Before you leap into the market and start snapping up bargain-priced stocks, remember this caveat: Don’t play with money you’ll need in the short term. Historically, stocks have increased in value faster than any other asset class, so they’re appropriate for the long-term investor. Even so, it’s a roller-coaster, so don’t invest if you’re prone to panic.

What are your thoughts on the market’s reaction to coronavirus? I’d love to hear your comments.



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