Many people are hurting right now in the finance department.
But if you’re lucky, you might still have a decent-paying job and some extra cash, and find yourself wondering how best to invest.
As Winnie Churchill said, crisis creates opportunity. Let’s talk about three ways to seize it.
Time in, Not Timing
Contrary to popular belief, the wealthiest people in the world don’t buy when things are low and sell when things are high. They don’t obsess over figuring out the exact right time to buy and sell at all.
Instead, they know that what matters most is how long your money is invested for. It’s time in the market, not timing the market, that generates the greatest returns.
So when it comes to the pandemic, the idea isn’t to wait for the market to crash, pour in all your cash or “buy the dip” and hope to get rich when the market snaps back. That’s a fool’s game.
The right approach is to simply keep investing regularly with the intention of holding those investments for a long time. Wealth is created over decades, not days. That’s the mentality you should have.
And the good news is that if the market goes down and stays down for a long time, you’re going to get great deals. The money you invest through a recession will go further and buy you more assets. And when the market eventually recovers, your gains will be great. If you just keep investing regularly with the intention of holding for the long term, good results are almost guaranteed.
Any other strategy is an unnecessary gamble with an outcome that’s extremely unlikely to be better and almost certainly to be worse.
But, with that said, if you’re eager to be especially greedy when others are fearful, here are some ways you can take full advantage of the current situation.
- Invest any extra cash that’s over and above your emergency fund and that you won’t need for at least the next five to ten years.
How much cash you choose to keep on hand in case of a rainy day is up to you. The typical advice is 3-6 months of expenses. If you’ve been hanging on to more than that for some reason and aren’t saving for a down payment on a home or another purchase you plan to make in the near term, then, sure, now might be a good time to throw it into the market.
Again, no one can be sure how long or severe the recession might be and picking individual stocks is risky on a good day. But broadly speaking there are some deals to be had and now is as good a time as any to invest. If you want more specific advice on this point, give me a ring.
- Tap into the equity in your home and move some of it into the market.
A more aggressive move would be to have your house appraised and to set up what’s called a Home Equity Line of Credit (HELOC).
Odds are your house has increased in value since you bought it. A HELOC allows you to take advantage of those gains, instead of waiting to sell. With a HELOC, you can take the equity you’ve made in your home and reinvest it into the market today. A nice strategy to maximize your upside, though not without its risks.
- Take out an investment loan and throw it into the market.
A similarly aggressive play would be to apply for an investment loan to kick things into overdrive. This isn’t for everyone as it amplifies both potential gains and potential losses, and you’re still on the hook for paying back the loan regardless of how your investments perform.
But for the right person, over the right time frame, this is a way to make big returns. I’d only recommend it if you’re well-established, with a secure and good paying job, a large emergency fund and a diversified set of other investments.
Either way, if you’d like suggestions on what exactly to invest in, how to get a HELOC set up, or a hand with applying for an investment loan, I’d be happy to hook you up and help you make the most of this situation.