The emergence of the new coronavirus and subsequent measures to restrict the movement of people, along with social isolation guidelines, have led to a sharp slowdown in economic activity. We are surrounded by news of a global recession, rising unemployment, collapsing commodity prices and more.
Is this a cause for panic or does this unprecedented crisis also give us a unique opportunity to invest successfully?
If we look at what has happened historically in the financial markets, 75% of the times when stocks have fallen more than 15%, that decline has been completely reversed in the following 12 months. In the remaining 25%, the declines were recovered a little later, but this always took no more than five years.
The explanation is simple – companies deliver products and services that are a daily part of our lives and without which we cannot.
Thanks to companies that work in the field of fuels, we keep moving, because of social networks we keep in touch with our loved ones, friends and business partners, food manufacturers and suppliers supply us with products and drinks, etc.. The goal of these companies is to exist long-term and sustainably on the market, which implies also striving to make a profit. In times of uncertainty, they act to adapt to the new situation and continue to generate profit.
There is a way for anyone who is willing to participate in the business of these companies and be partners with the most successful entrepreneurs and managers. Mutual funds are a convenient way to do this.
Here are some guidelines that can help you invest in mutual funds:
GET INFORMED
Read or ask at the bank what the different funds are. Before investing, read the documents about them carefully or ask for them to be carefully explained to you. Among the basic documents of mutual funds are:
• Key Investor Information Document
• Prospect
• Newsletters and other materials
Pay particular attention to two important features of the fund you are considering investing in. The first is called the recommended investment horizon. This is the length of time it is considered best to hold your investment before selling it. The other important indicator is risk. There are riskier and less risky funds. For example, funds with a risk indicator of 6 and 7 are generally not recommended for individual investors.
INVEST REGULAR
Investing amounts at regular intervals is one of the most efficient ways to take advantage of opportunities in the financial markets. This method is very suitable as a supplement to one-time investments. But it is also useful if you want to accumulate capital for your future goals - for education, for starting a business, etc.
Regular investing is extremely affordable. It is a myth that these forms of investment are only "for the rich". In fact, you can invest even with 20 euros or dollars per month.
The other important reason to invest your fixed amount but regularly is related to the continuous movement of the markets. If you invest every month, you automatically buy when the markets fall. So you actually get a more profitable average cost of acquiring units in your chosen mutual fund. That way, when the prices in the markets start to increase, you will have a higher profit.
KEEP YOUR EMOTIONS UNDER CONTROL
This advice is key to achieving success in investing. Very often people give in to emotions when making important decisions, which is a natural reaction. For example, when the markets go up, it has a calming effect. Then one is shown to be more inclined to take on additional risk with the expectation that the uptrend will continue.
Conversely, when the markets are going down, people start to worry that the situation may get worse, they may lose some or all of their funds. These natural human concerns, driven by emotions, lead to market behavior that is not always the most favorable. These emotions lead people to buy "high", that is, mainly during periods when the prices of the markets are moving up, and accordingly to sell "cheap" when the markets are going down.
Historical facts show that people who have invested in this way realize a lower return than the real one in the markets. US stocks, for example, have historically averaged a 9% annual return, and investors in them have returned 5%, which is almost half that. Therefore, it is important that people who invest remain informed and do not make decisions based on momentary emotions.
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