If you’re interested in the stock market and investing in stocks, you shouldn’t panic right now. But you should be aware of the facts: a coronavirus recession in North America is no longer just a possibility; it’s a developing reality.
For proof, you only need to look out your window. Restaurants and non-essential retail stores have shuttered. Highways, streets, and sidewalks are eerily empty. Very few airplanes are in the skies.
And things will likely get worse for the American and Canadian economies before they get better.
There could be more full city shutdowns if the coronavirus measures aren’t strictly followed. The plunge in consumer spending due to social distancing and job losses will mean millions more in layoffs and many bankruptcies. Analysts predict that auto and home sales will soon grind to a total halt.
The COVID-19 pandemic isn’t something to take lightly, so there is some justified fear out there.
However, this doesn’t mean we should abandon the idea of investing in stocks or drop our existing stock portfolios like a hot potato.
So, what exactly can we Canadian investors do to prepare for a recession?
Now is the time to take proactive measures to protect your finances and prepare for some short-term pain, without abandoning the longer-term possibility of stock market gains.
Here are five tips to help you through a coronavirus recession:
1. Don’t Have a “Fire Sale”
One major factor in most bad investment decisions is emotion. Just ask anyone who panicked during the financial crisis of 2008-2009.
The COVID-19 pandemic is an emotional time for all of us. But, even more than usual, now’s not the time to make brash decisions like calling the market bottom or selling off everything.
A savvy investor sticks to their overall investment strategy without letting emotion get in the way. If you have the funds to spare, you’ll also want to carefully consider selective opportunities that might present themselves, such as a solid stock that’s offering a discount due to a market sell-off. But, before you do that, go through the rest of our coronavirus recession tips first!
2. Take Your Financial Temperature
Firstly, you’ll want to add up all the cash you have on hand, as well as savings that can be converted to cash quickly, such as money market funds.
Next, you’ll estimate how much income you’ll receive in unemployment benefits in the event you should lose your job, if you haven’t already. If you do freelance/gig work or have your own business, estimate your reduced income as work slows.
And the last step is to put a number on how much money your household spends each month, including mortgage/rent, utilities, groceries, etc.
Once you have these figures, you can assess how long you can survive in a crisis before running out of money.
3. Start Building Your Emergency Fund
Many people believe they can survive on credit cards or lines of credit during a recession, but that’s not always possible. Banks often restrict lending during a downturn, exactly when you most need access to cash.
For this reason, you should always have an emergency fund. Every household should aim to have three to six months of cash in the bank. If you don’t already have one of these, start now.
To start, if your emergency fund looks skimpy, you might want to look at temporarily pausing retirement contributions.
4. Drastically Reduce Your Expenses
Luckily, social distancing protocols and business shutdowns have made this step easier. Going without your pub night, hairstylist appointments, Mexico vacation, daily childcare, or basketball seasons tickets might be personally painful, but it’ll do wonders for your bottom line.
Comb through your budget and look for opportunities to save further. Can you replace your regular delivery food nights with home-cooked meals? Do you really need that magazine subscription? Can you find opportunities to save on home and auto insurance or use a less expensive Internet package? Do you really need three different streaming services? Should you finally consider getting a roommate? Can you get rid of one of the family vehicles?
All of these savings can be added to your emergency fund. You can also set a little extra aside for potential lower-risk stock investing opportunities, if you can spare it.
5. Ease up on Debt Payments Where You Can
Pay the minimum possible on credit cards, personal loans, and other debts. Focus on higher interest debt first.
Use any leftover cash flow to top up your emergency fund. Anyone looking to become wealthy should aim to get themselves out of debt eventually. But right now, your focus should stay on immediate survival.
6. Turn Your Spare Time into a Side Hustle
Perhaps you’ve got more free time now because you’ve been temporarily or permanently laid off. Or maybe you’re working from home, so now have a few extra hours because you’re saving on commute time and also not going to the gym every morning.
Well, with some ingenuity, you could turn that free time into a new business or freelance work opportunity. The possibilities are endless, so it comes down to your personal skills and interests.
If you’ve got the sewing bug, you could make and sell face masks online. If you have amazing graphic design skills and the proper software, look into freelance gig opportunities you can do from home. If you love driving, maybe you can sign up with a local food delivery service (while taking every safety precaution, of course). The point is: how can you leverage your time into making more money that you can funnel into your emergency fund and investment portfolio?
No matter what you choose to do to bump up your financial health, if you’re getting some kind of government financial assistance, make sure you report all required aspects of your income, or you’ll pay for that mistake later.
Learn-To-Trade.com Teaches How to Make Money in a Bullish or Bearish Market
The stock market has obviously been suffering from the impact of COVID-19 and coronavirus recession fears. But the good news is that the pandemic will end once one of the multiple vaccines in the works is successful and the economy and stock market will bounce back, fueled by pent-up demand and government assistance.
Meanwhile, if you’re in the right financial position, the plunge in stock prices presents a potentially lucrative moment, with many excellent stocks trading at steep discounts. Before stocks rebound though, they will continue to experience extreme volatility. That doesn’t mean investors should run for the exits. The trading professionals at Learn-To-Trade.com can teach investors how to make money when stocks are bullish or bearish.
Learn-To-Trade.com is the oldest and leading provider of stock market trading courses in Canada. Over the years, the professional traders at Learn-To-Trade.com have taught investors of every skill level how to trade more confidently and profit more consistently.
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