In the U.S. alone, there are now over 85,000 confirmed cases of covid-19. In response to this sudden pandemic, the markets have taken a wild turn and stock prices have been tumbling.
But how did this happen? And what can we do—if anything—to come out better on the other side of this market crash? Let’s talk about what you should do during an economic collapse to protect your family and your finances.
What Is the Coronavirus Outbreak?
In December of 2019, Chinese medical authorities started treating dozens of cases of pneumonia from an unknown cause. Of course, it wasn’t actually pneumonia that was making people sick.
It was a new strain of coronavirus. Coronavirus is the same virus that caused the terrifying SARS outbreak from 2002 to 2004, and MERS later in 2012.
SARS held a terrifying mortality rate of 10%. For patients over 85, covid-19 has a mortality rate between 10% AND 27%. But for younger people, the rate varies between less than 1%, to 11% gradually getting more lethal with age.
What’s even scarier is covid-19 is incredibly contagious. People who don’t show any symptoms can be carriers and spread the disease to vulnerable individuals.
It’s estimated that each contagious person will spread it to 2 to 2.5 other people. 40% to 70% of the world’s population could catch covid-19, leaving millions dead.
Why Are We Worried About a Market Crash?
We all want to protect our loved ones – our grandparents, older parents, and members of our community with health factors that put them at higher risk. And since the virus is so contagious, people are practicing social distancing. 24 states by the end of this week will have mandatory stay-at-home orders.
Companies have had to lay off people by the millions. The current U.S. unemployment rate is 3.3 million people. People are losing their healthcare and their incomes. Slowly, the economy is grinding to a halt, and the DOW is reflecting that.
People are scared to spend money when they don’t know if they’ll have more. People can’t go out and spend money on anything but essentials since most places are closed down. Businesses can’t stay open because they’re mandatorily closed to protect the population as a whole. All of this is causing a recession.
Until we find a way to cope with the virus, this could be the new normal for the foreseeable future.
Save Save Save
Right now, you need to be saving money. In a perfect world, you have an emergency fund of at least 3 to 6 months set aside.
But I get that not everyone has that.
So create a budget for whatever income you can bring in right now, and make sure you spend less than you make. Save the difference.
Find as many places as you can to cut expenses.
Hopefully, you won’t end up needing the money for basic necessities down the line. But if you do, it’s there. If you don’t need it, you’ll be able to invest in major assets like stocks, funds, and real estate at an all-time low.
Invest in Yourself
With states on lockdown, you likely have a lot of extra time on your hands. Now is the perfect time to invest in yourself. Read books, sign up for online courses, watch YouTube videos, or learn from a mentor.
We’re going to need new skills to make it in a post-covid-19 world. If and when another virus like covid-19 comes through, you’ll want to make sure you can weather the next storm.
Look for skills that are in high demand right now, like healthcare positions. Other skills include anything related to an increasingly digital world/workforce, such as:
- video editing and production
- audio editing and production
- teleconferencing software development
- e-learning software design and development
- remote team management skills
- social media management skills
- paid ad skills (Facebook ads, YouTube ads, Instagram ads), etc.
By learning skills in these areas, you can find a new job fast, and whether the next storm.
What About Stock Market Investments?
At its peak, the DOW was at 29,398. As of this writing, it’s at 21,636, which means the stock market is down about 26%. If you’ve checked your investments lately, well, probably just don’t.
It is terrifying to watch your life savings dwindle in a market crash. But remember this: selling locks in your losses.
Unless you know for sure you’re going to need your retirement fund in the next few years, be patient, and be willing to weather this out. The market has always recovered. If it doesn’t, then we’ll have much bigger fish to fry than our retirement accounts.
If you like the stock market, one investing approach you could take would be to dollar cost average into it over the next 12 months. Dollar cost averaging just means that you periodically buy a fixed dollar amount on a predetermined schedule.
For example, you might buy $250 worth of the Vanguard S&P 500 Exchange Traded Fund (VOO) every 30 days. The strategy of dollar cost averaging is based on the logic that you’ll get to buy more shares per dollar spent when the market is low (a better value) and fewer when it is high (over-priced).
The reason I mention VOO is that it is a low-cost ETF where the Expense Ratio—meaning, what they charge to operate the fund—is only 0.03%. That is extremely low, and historically, the best performing funds are the ones with the lowest management costs since these costs eat away at your gains.
Plus, it tracks the S&P at large. Again, on a historical basis, almost no one (not even the “pros”) outperform the market.
Or, you can sell your stocks now, and let the market drop more and buy back in at a lower price. But be wary about trying to time the bottom. It can be risky and doesn’t always pay off.
Should I Buy While Stocks Are Low?
Yes, absolutely! But with a few caveats.
Market crashes are a great time to buy assets at an amazing price. But this should never come at the expense of your emergency fund or making sure you have enough money to cover basic expenses like rent or food.
Set your budget, and make sure you have room for savings, and a good emergency fund built up. If you still have available cash on top of that, you’re in a great financial position, and you should invest in the markets.
One way to invest during the downturn is by putting your money in major commodities like banks or oil. This is called speculation because it could go to absolute zero. But you could also see your investment double, triple, or even better returns when the market does recover. This is what is known as an “asymmetrical” risk—limited downside risk with substantially greater upside potential.
You can also look into investments that don’t need a lot of capital to get started in.
If you’re going to invest, make sure to do so in assets that have traditionally done well in recessions. These are assets like real estate, reliable dividend stocks, or precious metals.
Personally, I will be looking to pick up some real estate properties at amazing prices in the next couple years. There’s also crowd-sourced real estate investing, peer-to-peer lending, and even Bitcoin, which tumbled over 50% in early March.
You could also learn how to short stocks and bet against the market. But keep in mind this is a pretty risky practice, and shouldn’t be taken as a solid investment.
You Can Thrive in the COVID-19 Market Crash
This won’t be the first market crash and it certainly won’t be the last. The economy always has ups and downs and it historically has always recovered to see new highs.
So when you see your investments losing value, don’t panic, and trust the process. Stay the course, don’t lock in your losses, and keep buying into the market.
And above all, save, cut back your expenses, invest in yourself, and stay safe.
Together, we’ll weather this crisis.
Got some extra time on your hands while you practice social distancing and stay at home? Check out these life-changing books to fill your time.