The coronavirus pandemic has taken a huge hit on the economy and many individuals’ financial security. It has also caused massive swings in the stock market’s performance, which could certainly be unnerving to anyone who is invested in it.
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But all the uncertainty has taught us some very important investing lessons and reinforced some tried-and-true rules of thumb. See some important investing lessons we’ve learned from the pandemic.
It’s Important To Invest In an Emergency Fund
Before investing any money in the market, it’s important to save money in an emergency fund to be prepared for an unexpected job loss or long-term illness — both of which have become more frequent occurrences during the coronavirus pandemic.
Betterment surveyed 1,000 investors in March, July and September 2020, and found that this is a lesson many investors took to heart. In March, 66% said they have an emergency fund in place; by September, that number had grown to 84%.
Stay Focused on Long-Term Goals
Your retirement saving strategy shouldn’t be affected by fluctuations in the market. This is a lesson that investors seem to have learned over the course of the year — as of the September 2020 Betterment survey, 57% of investors said that the pandemic had not changed their approach to saving for retirement.
“Seeing more investors adding to their savings while mostly leaving their approach to retirement unchanged is exactly the balance we would hope to see,” Betterment experts said in a blog post. “Having accounts to meet short-term goals means that accounts to fund longer-term goals — such as retirement — can remain untouched and continue to grow.”
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Don’t Overreact To Market Volatility
When the pandemic first hit, the stock market took a nosedive, reaching a low point on March 23, 2020. But since then, the Dow Jones Industrial Average and S&P 500 each have soared more than 50%, ABC News reported.
When the market is underperforming, it could be tempting to take money out of it — which is what 20% of investors did in March, the Betterment survey found. But by September, investors had learned to ride out the ups and downs — only 14% said they had taken money out of the market in the last six to eight weeks.
“It is great to see the number of people removing money from the market in the face of volatility trickling downward,” the Betterment experts said. “But ideally, the number of people withdrawing from the market should be even lower: investors who react to volatility this way may be doing themselves a disservice in the long-run, potentially costing themselves gains by waiting for the market to recover.”
Maintain a Diversified Portfolio
Market volatility reiterates the need for maintaining a diverse portfolio. Investors should spread their wealth across numerous investment vehicles, which can include IRAs, individual stocks, 401(k) plans, mutual funds, CDs, individual bonds, ETFs, commodities and crypto.
The Betterment survey found that many investors are actively investing in a diverse portfolio, which its experts said is a good thing: “It is great to see the diverse vehicles that our respondents are invested in, beyond just a traditional 401(k) or IRA.”