Young investors getting harsh market lessons
But downturn can create opportunity
For beginner investors, 2020 is offering up plenty of unnerving moments.
The COVID-19 pandemic has shut down a chunk of the U.S. economy and sent markets plunging. Initial jobless claims of more than 16 million in the past few weeks have shocked many.
At the end of March, stocks closed a quarter of major losses not seen since 2008. The S&P 500 closed down 20% for the quarter, its worst decline since 2008.
At this time, it's tough to remember that the market always eventually corrects itself and has historically returned an average of 10% annually, before inflation. Those who ride out a recession or depression often come out better than they started, but it's still difficult not to have investing jitters, especially for those who were too young to be in the workforce during the last recession.
Every situation is different, but there are some ways to make good investment choices during the coronavirus crisis. According to Ashley Fox, the CEO and founder of Empify, which shows adults and children how to build wealth, this is a good time for new investors to learn, not to panic.
“What they do wrong is look at it as a trial and tribulation that they cannot get through … versus looking at it as an opportunity to ... learn, to ... grow and to also monetize and take advantage of other … stock markets,” Fox said.
Fox said that the average beginner investor is a working professional who may not come from
Ashley Fox, the CEO and founder of Empify, says now is a great time for new investors to learn rather than to panic.
money and may not know how to do more with his or her income.
“They've internalized ... ‘I just don't know where to go and I don't know if I can do it myself,'” Fox said.
Lazetta Rainey Braxton, a certified financial planner and the co-CEO of 2050 Wealth Partners, noted that this downturn, while steep, has been a long time coming, given that the economy had been on the upswing since 2009.
“It's been the longest bull market in history — 11 years — so it was time for a correction.”
Fox said beginner investors shouldn't shy away from buying when stock prices go down.
“If you are willing to wait in line to buy a television because it's cheap on Black Friday, you can be willing to invest in a billion-dollar business, because the stock price went down,” Fox said.
Braxton and Fox both said, however, that it's important to make sure you have the funds on hand to invest.
“Some people may have to (liquidate stocks) because they don't have the emergency fund and they need liquidity because maybe they've lost their job or maybe they don't have unpaid leave,” Braxton said. “If you're going to invest now, that means you have cash available to invest.”
Fox said that how close a person is to retirement will also be important in the decision about investing during this time.
“If you're in your 50s, you've got to now ask yourself, do you have time for it to bounce back, because you may have needed that money, so that's when you should sit and talk to your financial adviser,” Fox says.
But Fox advised against selling stocks right now if a person doesn't truly need the money.
“The only way you guarantee a loss is if you sell,” Fox said.
It's impossible to predict the market, of course, but Fox and Braxton have some strategies for deciding what companies to invest in, including those that sell essential goods like health-care products and groceries.
Braxton said to make sure you have balance between what you've invested and what's in your emergency account.
If you don't have enough money set aside for emergencies or expenses, you also can consider temporarily having a little less taken out of your paycheck for your 401(k), but be sure to contribute enough to get the crucial company match. Also, look to reduce expenses elsewhere. Avoid running up credit card debt. And, do you need a fashion subscription box and membership to a gym you can't use now?
Also, reassess your investment strategy, Braxton said. “Are you taking the right amount of risk or not enough?”
Investors also should remember they can make changes in their financial situation even in uncertain times.
If you don't have a financial adviser, check your 401(k) or other account online and ensure you have a balanced portfolio with stocks and bonds to hold up better amid turmoil. Investment sites can offer ideal asset mixes to help the neophyte investor based on age and other factors.
“I could sit here and say, ‘Put your money here,' but I don't know you or your money, so how can you trust that I know what's best for you?” Fox said. “I just need you to trust and love you enough to know that it can actually be done.”
Perhaps most importantly, financial experts encourage young investors to remember that they have many working years ahead of them, and are in it for the long haul. Patience is important at this time.