Build up your emergency savings, then continue investing normally for the long term.<\/p><\/blockquote>\n
\u201cReally? That sounds a bit too simple for a crisis like this. Are you sure?\u201d<\/p>\n
Yup. But of course, the devil is in the details. This is how I\u2019m thinking around investing in these\u00a0coronavirus\u00a0times, and how an average investor should probably think about it too.<\/p>\n
<\/span>Investing is (probably) not gonna replace your salary<\/span><\/h2>\nI\u2019m starting with this because I worry many people are looking at investing wrongly \u2014 like the magic bullet which will solve all their money problems.<\/p>\n
I\u2019ll be blunt: if you\u2019re looking to make more money\u00a0now<\/strong>, I don\u2019t think you should be focused on investing.<\/p>\nInstead, get really good at your\u00a0work. Build expert skills that are valuable to lots of people and charge for it. I say this in the broadest sense possible: this could be your day job or your side gig. It could even be your \u201cpassion project\u201d online business which really takes off and becomes your main income.<\/p>\n
Investing, on the other hand \u2014 is a long-term project that prepares you for your retirement 30 years away. It\u2019s more about \u201cprotecting and growing\u201d wealth you\u00a0already have<\/em>\u00a0versus generating lots of new income.<\/p>\nIt might take decades before your monthly investment returns even come close to your\u00a0first<\/em>\u00a0salary (and\u00a0most<\/a>\u00a0people never even get there). So unless you have a very special set of skills, you\u2019re likely never gonna make a full-time income from investing.<\/p>\nNow that we\u2019ve got those\u00a0Wolf of Wall Street<\/em>\u00a0fantasies out of our heads, let\u2019s talk about what\u2019s coming next.<\/p>\n<\/span>There\u2019s another crash coming<\/span><\/h2>\nIn March 2020, global markets (including stocks, bonds, oil, Bitcoin, and anything else people invest in) crashed like never before. Since then, most markets have partially recovered.<\/p>\n
Which is REALLY weird, because broad consensus is economies around the world are pretty f***ed up right now. A simple example: The S&P 500 (which represents the USA stock market) went up 28.48% percent in the same 4 weeks (23 March \u2013 18 April) that >21 million<\/a>\u00a0Americans lost their jobs.<\/p>\nWhich reminds me of a saying in finance circles: \u201cThe stock market is not the economy.\u201d<\/p>\n
When I say another crash is coming, I mean people feeling it. I mean people filled with\u00a0fear, struggling to pay bills, and not having enough food. And if unemployment continues to grow around the world because of the coronavirus, eventually the markets will follow too.<\/p>\n![\"\"](\"https:\/\/static.imoney.my\/articles\/wp-content\/uploads\/2020\/05\/12123653\/SP-500-Chart-April-2007-April-2009.jpg\")
The last \u201ccrash\u201d in 2009 actually happened over 16 months (via\u00a0TradingView<\/a>)<\/em><\/figcaption><\/figure>\nIn fact, many experts are saying we\u2019re already in a recession \u2014 and the only question is whether we end up in a\u00a0depression<\/em>\u00a0or not. A recession is like you having to skip dinner for a year. A depression is going to bed hungry for ten.<\/p>\nLooking at history, we can estimate that recovery might take years, or even decades (like the 1930s\u00a0Great Depression). How should we invest our money?<\/p>\n
<\/span>The pre-requisite: survival<\/span><\/h2>\nSurvival is your utmost priority. It doesn\u2019t matter how much your stock portfolio grows in the next five years, if you or your loved ones aren\u2019t around to enjoy it.<\/p>\n
So apart from health, your first priority is to ensure you have enough emergency cash. Your target: 6-12 months of expenses. This is money you can easily get if s*** hits the fan.<\/p>\n
What happens if your employer surprises you with a 20% pay cut, followed by your wife losing her job? Will you be able to survive such shocks? Even if everything\u2019s fine with you, you\u2019ll probably need cash to help your friends and relatives who are struggling.<\/p>\n
So focus on this important point first, before you even think of investing.<\/p>\n
<\/span>Wait till it crashes, then buy low right? (no)<\/span><\/h2>\nMoving on: Every investor has heard the saying \u201cdon\u2019t try to time the market,\u201d but it\u2019s almost impossible to follow. \u201cWhy should I buy when the market is falling?\u201d we question. \u201cI\u2019ll buy when it hits the bottom.\u201d<\/p>\n
Ah, the elusive bottom. Something people search their entire lives for, but nobody ever finds. But what if you somehow managed to do it? What if you had God-like market timing and somehow figured out exactly when to buy in? Someone has actually done the math.<\/p>\n
Here\u2019s Nick Maggiulli in his wonderfully-titled \u201cEven God Couldn\u2019t Beat Dollar Cost Averaging<\/a>\u201d article:<\/p>\n\u2026Buy the Dip, even with\u00a0perfect information<\/strong><\/em>, typically underperforms Dollar Cost Averaging (for the S&P 500).\u00a0So if you attempt to build up cash and buy at the next bottom, you\u2019ll likely be worse off than if you had bought every month.<\/p>\nWhy?\u00a0Because while you wait for the next dip, the market is likely to keep rising and leave you behind.<\/p><\/blockquote>\n
I know, it\u2019s hard. We like to time the market because we wanna feel smart; like we\u2019re getting a Mega Sale discount. But historically for most investors, it just doesn\u2019t work.<\/p>\n
Much better to find something you\u2019re confident to invest in for the long term, then\u00a0Dollar Cost Average<\/a>\u00a0in.<\/p>\nTime in the market beats timing the market.<\/p>\n
<\/span>Invest in the broad markets<\/span><\/h2>\nMost people shouldn\u2019t be choosing individual stocks to trade. Most people should be buying passive index funds or Exchange Traded Funds (ETFs).<\/p>\n
What\u2019s the easiest way to start? If you\u2019re reading this from Malaysia, a\u00a0robo-advisor\u00a0is the fastest, cheapest, most convenient way to get a mix of high-quality ETFs.<\/p>\n
As an iMoney reader, enjoy reduced fees when you sign up for robo-advisor StashAway through <\/strong>this link<\/strong><\/a>. But as always, remember to do your own research before investing.<\/strong><\/div><\/div>\nAgain, I\u2019m writing this for the average investor. Someone who\u2019s busy with his job and family, and doesn\u2019t have Warren Buffett-like time to read financial papers. Maybe you think you\u2019re not average (research says most of us think so too!), but history conclusively tells us even most\u00a0professional<\/em>\u00a0money managers\u00a0underperform<\/a>. What are the odds Joe quietly scrolling Bloomberg.com at the corner over there can pick stocks better than professionals?<\/p>\nWhen you invest into a broadly-diversified instrument like an ETF, you\u2019re not putting your hopes into a single company or management team. You\u2019re investing into the collective capabilities of the most brilliant business minds in the world.<\/p>\n
Yes, things may still go up and down. You may still get alarmed if your assets drop below your buying price. But over long periods of time, the human race has always continued to prosper and grow richer.<\/p>\n
Have faith.<\/p>\n
<\/span>Invest for the long term<\/span><\/h2>\nHow long? Most industry professionals say you need at least 3-5 years of time when\u00a0investing.<\/p>\n
But I like to think further than that. If this is really the mother of all depressions like the 1930s, it might take decades to recover. I suggest you get comfortable investing for your retirement, not to aim to cash out in 5 years.<\/p>\n
What if you need the money sooner? Say, you\u2019re keeping money for your upcoming wedding in 3 years, or you\u2019re really planning to retire in 10.<\/p>\n
Park it in lower-risk funds instead. You\u2019ll likely earn less, but the value should hold steadier. Again, it\u2019s super easy to do this via robo-advisors. Just select a lower-risk portfolio and let the investing magic happen.<\/p>\n
Instead, get really good at your\u00a0work. Build expert skills that are valuable to lots of people and charge for it. I say this in the broadest sense possible: this could be your day job or your side gig. It could even be your \u201cpassion project\u201d online business which really takes off and becomes your main income.<\/p>\n
Investing, on the other hand \u2014 is a long-term project that prepares you for your retirement 30 years away. It\u2019s more about \u201cprotecting and growing\u201d wealth you\u00a0already have<\/em>\u00a0versus generating lots of new income.<\/p>\n It might take decades before your monthly investment returns even come close to your\u00a0first<\/em>\u00a0salary (and\u00a0most<\/a>\u00a0people never even get there). So unless you have a very special set of skills, you\u2019re likely never gonna make a full-time income from investing.<\/p>\n Now that we\u2019ve got those\u00a0Wolf of Wall Street<\/em>\u00a0fantasies out of our heads, let\u2019s talk about what\u2019s coming next.<\/p>\n In March 2020, global markets (including stocks, bonds, oil, Bitcoin, and anything else people invest in) crashed like never before. Since then, most markets have partially recovered.<\/p>\n Which is REALLY weird, because broad consensus is economies around the world are pretty f***ed up right now. A simple example: The S&P 500 (which represents the USA stock market) went up 28.48% percent in the same 4 weeks (23 March \u2013 18 April) that >21 million<\/a>\u00a0Americans lost their jobs.<\/p>\n Which reminds me of a saying in finance circles: \u201cThe stock market is not the economy.\u201d<\/p>\n When I say another crash is coming, I mean people feeling it. I mean people filled with\u00a0fear, struggling to pay bills, and not having enough food. And if unemployment continues to grow around the world because of the coronavirus, eventually the markets will follow too.<\/p>\n In fact, many experts are saying we\u2019re already in a recession \u2014 and the only question is whether we end up in a\u00a0depression<\/em>\u00a0or not. A recession is like you having to skip dinner for a year. A depression is going to bed hungry for ten.<\/p>\n Looking at history, we can estimate that recovery might take years, or even decades (like the 1930s\u00a0Great Depression). How should we invest our money?<\/p>\n Survival is your utmost priority. It doesn\u2019t matter how much your stock portfolio grows in the next five years, if you or your loved ones aren\u2019t around to enjoy it.<\/p>\n So apart from health, your first priority is to ensure you have enough emergency cash. Your target: 6-12 months of expenses. This is money you can easily get if s*** hits the fan.<\/p>\n What happens if your employer surprises you with a 20% pay cut, followed by your wife losing her job? Will you be able to survive such shocks? Even if everything\u2019s fine with you, you\u2019ll probably need cash to help your friends and relatives who are struggling.<\/p>\n So focus on this important point first, before you even think of investing.<\/p>\n Moving on: Every investor has heard the saying \u201cdon\u2019t try to time the market,\u201d but it\u2019s almost impossible to follow. \u201cWhy should I buy when the market is falling?\u201d we question. \u201cI\u2019ll buy when it hits the bottom.\u201d<\/p>\n Ah, the elusive bottom. Something people search their entire lives for, but nobody ever finds. But what if you somehow managed to do it? What if you had God-like market timing and somehow figured out exactly when to buy in? Someone has actually done the math.<\/p>\n Here\u2019s Nick Maggiulli in his wonderfully-titled \u201cEven God Couldn\u2019t Beat Dollar Cost Averaging<\/a>\u201d article:<\/p>\n \u2026Buy the Dip, even with\u00a0perfect information<\/strong><\/em>, typically underperforms Dollar Cost Averaging (for the S&P 500).\u00a0So if you attempt to build up cash and buy at the next bottom, you\u2019ll likely be worse off than if you had bought every month.<\/p>\n Why?\u00a0Because while you wait for the next dip, the market is likely to keep rising and leave you behind.<\/p><\/blockquote>\n I know, it\u2019s hard. We like to time the market because we wanna feel smart; like we\u2019re getting a Mega Sale discount. But historically for most investors, it just doesn\u2019t work.<\/p>\n Much better to find something you\u2019re confident to invest in for the long term, then\u00a0Dollar Cost Average<\/a>\u00a0in.<\/p>\n Time in the market beats timing the market.<\/p>\n Most people shouldn\u2019t be choosing individual stocks to trade. Most people should be buying passive index funds or Exchange Traded Funds (ETFs).<\/p>\n What\u2019s the easiest way to start? If you\u2019re reading this from Malaysia, a\u00a0robo-advisor\u00a0is the fastest, cheapest, most convenient way to get a mix of high-quality ETFs.<\/p>\n Again, I\u2019m writing this for the average investor. Someone who\u2019s busy with his job and family, and doesn\u2019t have Warren Buffett-like time to read financial papers. Maybe you think you\u2019re not average (research says most of us think so too!), but history conclusively tells us even most\u00a0professional<\/em>\u00a0money managers\u00a0underperform<\/a>. What are the odds Joe quietly scrolling Bloomberg.com at the corner over there can pick stocks better than professionals?<\/p>\n When you invest into a broadly-diversified instrument like an ETF, you\u2019re not putting your hopes into a single company or management team. You\u2019re investing into the collective capabilities of the most brilliant business minds in the world.<\/p>\n Yes, things may still go up and down. You may still get alarmed if your assets drop below your buying price. But over long periods of time, the human race has always continued to prosper and grow richer.<\/p>\n Have faith.<\/p>\n How long? Most industry professionals say you need at least 3-5 years of time when\u00a0investing.<\/p>\n But I like to think further than that. If this is really the mother of all depressions like the 1930s, it might take decades to recover. I suggest you get comfortable investing for your retirement, not to aim to cash out in 5 years.<\/p>\n What if you need the money sooner? Say, you\u2019re keeping money for your upcoming wedding in 3 years, or you\u2019re really planning to retire in 10.<\/p>\n Park it in lower-risk funds instead. You\u2019ll likely earn less, but the value should hold steadier. Again, it\u2019s super easy to do this via robo-advisors. Just select a lower-risk portfolio and let the investing magic happen.<\/p>\n<\/span>There\u2019s another crash coming<\/span><\/h2>\n
<\/span>The pre-requisite: survival<\/span><\/h2>\n
<\/span>Wait till it crashes, then buy low right? (no)<\/span><\/h2>\n
<\/span>Invest in the broad markets<\/span><\/h2>\n
<\/span>Invest for the long term<\/span><\/h2>\n