Whenever there is a massive drop in the stock market, you immediately have two types of people- those who panic sell, and those who buy thinking they are investing in a big future at a very low point in the present.
However, is there a right way or a wrong way to invest during a tumultuous time such as the one we’re in right now? Mauri Backman from the Motley Fool broke down some very key points one should consider holistically during a massive drop and unpredictable period such as this. According to Backman, “bear markets offer solid investment opportunities– because stocks are cheaper to buy on a whole. If you’re thinking of putting money into stocks in the next few weeks, that could be a potentially lucrative move, especially in the long run.” However, what do you need to focus on before even considering touching the stock market?
Backman believes you should first consider starting or topping off a “fully loaded emergency fund.” What this means is that you should “first make sure you have enough money in the bank to cover about six months of essential living expenses. If you have little to no money earmarked for emergencies, boosting your savings account balance should take priority over stock investments.” Finance guru Dave Ramsey suggests at minimum, starting out with $1,000 and then calculating 3-6 months of your current earned salary and storing it in a good, high-interest savings account.
What’s next then? After you’ve taken care of your emergency fund, “you should only invest money today that you’re convinced you won’t need to touch for the next 10 years. That means don’t invest the down payment you’re saving up to buy a home or the funds you need to throw a wedding next year.” Once you put that money in, treat your portfolio like your face, the less you touch it, the better!
From there the rest is up to you. Make sure to do your research and invest in good growth stocks in companies you have an actual interest in, otherwise, you’re just throwing money into something you’re constantly going to be worrying about. Backman explains that “investing during a bear market could pave the way for some very impressive returns down the line. Just make sure to answer the above questions before you dive in so you don’t make a mistake you end up regretting.”