Within this article, I will discuss my suggested strategies for long-term investors within this bear market.
A correction is defined as a pullback of 10%. A bear market is widely defined as a drop of 20% from a recent peak. With fear over the economic impacts of the coronavirus pandemic, the market has dropped over 30% from 19 February 2020 to 19 March 2020. Have we reached the bottom? I don’t believe so. COVID-19 is going to continue to spread fear until a vaccine is approved, proven treatment is available and hospitals are within capacity to handle the affected patients. The question to ask now is “what do I do with my money?”
Two Strategies for the Long-Term Investor
1. The first method is to continue to invest in the market and slowly average lower and lower until the market starts to increase again. You’ll be stimulating the economy, and preventing yourself from missing out on the market’s reversal. There is a strategy here to get the largest bang for your buck. Invest a fraction of what you have available to invest when the market drops. We’ve seen the S&P 500 drop from 5-10% within one day, and these would be a good opportunity to buy.
2. The second method is to have pulled all of your money out and lock in your profits/cut your losses and await a reversal to occur. Await “higher highs and higher lowers,” and the market to trend up, breaking the EMA. Be patient.
With how the bearish market is right now, you can either abide by the first suggested strategy above or do what I am personally doing. I have decreased my 401K contribution to my employer’s match and will await the market to reverse to “play catch up” to meet the maximum $19,500.
What Else Am I Doing?
The market recovers. It has shown this through multiple outbreaks throughout time. The market is bearish due to people’s fear of what could happen. My focus is retiring early, and I believe the best way to fulfill my goal is by a combination of the two actions above. I have left a large portion of my long-term investments in the market and have continued to add a small portion of my income to these investments to decrease the average for when the market does reverse. The remainder of my income allocated to investing has gone to day trading and short term swing trades. Follow the new instagram @PillPicks to see positions taken/sold.
As a healthcare professional, remember to practice good hygiene and social distancing. Act as if you are already infected with COVID-19 to protect others. Be safe and make smart trades.