The financial markets have experienced significant volatility due to concerns over the spread of the Coronavirus. Due to the unknown impact it may have on global supply chains and economies, market jitters have been the result of this uncertainty. While the medical community and government entities such as the Center for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH) are working to prevent the spread of the virus and developing potential vaccines, we don’t know when, or how, the situation might change for the better. Because of this uncertainty in the markets, the markets have been negatively impacted. It is important to remember that market volatility during times of crisis is normal.
History is a great reminder to invest with your head and not with the headlines. While there have been plenty of reasons not to invest in the stock market over the years, for the long-term investors, the results have generally been positive over time. A good way to keep your focus on your goals is to remember the three “Ds” of investing: Dollar-Cost Averaging, Discipline,and Diversification.
DOLLAR-COST AVERAGING
Investing a fixed amount at regular intervals eliminates having to predict when to invest as you will be able to take advantage of the market highs and lows — by purchasing fewer units when the prices are high and more units when prices are low. This helps you to reduce the dramatic impact of market swings and enable yourself to build wealth over the long term. Dollar-cost averaging cannot assure a profit or protect against loss in declining markets. Since dollar- cost averaging involves continuous investments over time regardless of fluctuating price levels, you should consider your ability to continue to invest in periods of low price levels.
DISCIPLINE
By staying focused and staying invested through all market activity, you can increase your long-term potential because missing even a handful of the best-performing days in the market over time can considerably diminish your returns.
DIVERSIFICATION
By investing in different asset classes you may help spread out the risk in your portfolio. This may also work to increase returns by offsetting losses in one asset class with an opportunity for gains in another. While diversification does not assure a profit or protect against loss, it may well be one of the most important investment strategies.
The bottom line is, invest with your head, not the headlines. Your financial goals haven’t changed. Neither should your approach to investing.
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Dollar-cost averaging is a technique for lowering average cost per share over time. Dollar-cost averaging cannot assure a profit or protect against loss in declining markets. Investors should consider their ability to continue to invest in periods of low-price levels.
