4 min read
This story originally appeared on ValueWalk
For those looking at investing their pandemic savings, stocks could be a solid option because, based on past performance, “the market has outrun inflation, meaning that your money holds its value,” according to Money Morning.
As informed by Bloomberg Economics, up until March, American consumers had saved $1.6 trillion during the pandemic, more than half of the $2.9 trillion saved by consumers worldwide.
Savings are expected to keep growing while some restrictions continue, “but as the vaccine rollout picks up speed, more spending may happen sooner rather than later.”
So, as Americans have been in a prime position to keep their pandemic accounts savings untouched, this also means that they have a great opportunity to invest.
The $1.6 trillion in savings is approximately $1 trillion bigger than the economy’s output gap, so “That means consumers won’t need to collectively spend the entirety of their pandemic savings to close the output gap.”
A McKinsey study further asserts that the enormous ten to 20-percentage-point peak in the savings rate throughout the U.S. and Europe –despite the uneven recovery– has left plenty of households in a solid position to spend.
Focusing Long Term
Investing amid the pandemic requires looking at some critical aspects to get the best returns while playing it safe.
Firstly, investors must hone their risk aversion level by establishing the right level of uncertainty. It all depends on the level of risk they are willing to tolerate and the returns that they would want to obtain.
The more profitability is expected, the greater risk will have to be assumed.
Analysts at the Andbank Investor Observatory assert that, in times of crisis, it is desirable not to focus on short-term falls and instead aim to the long-term to increase profitability. For as long as the investment lasts, it is advisable to check the evolution of the acquired assets and keep tabs on the market’s ups and downs.
The rupee cost averaging strategy allows for investing in more assets with lower prices and fewer assets with high prices. “Either way, when you start dedicating a certain sum of money towards investments, its value is more likely to appreciate in the long run,” says The Economic Times.
In the current COVID-19 context, investors are also looking at alternative assets that offer protection against uncertainties and can help prevent their money to erode, regardless of the money market performance.
At present, there is a boom of these assets whose value has skyrocketed by 500% across several categories.
However, they require high minimum investments and fees, particularly when compared against mutual funds or exchange-traded funds.
Investing Savings in Stock
The pandemic and the soaring growth of online trading apps have increased people’s appetite for stocks.
Nicola Knight is a marketing manager from Pontypridd, in the U.K., who started investing in June 2020 as a day and swing trader –people trading for a few days to seize market movement opportunities.
She told BBC, “I would never have known about any of this [investing] if it wasn’t for Covid, because of the impact it had on pension funds in the stock market.”
Nicola further asserts that people’s interest in investment has vastly increased since the start of the pandemic, with effective vaccination roll-outs now predicted to increase movement, trade, and spending, and several industries like travel and entertainment coming back to business.
What To Watch For
Stocks are a good way of diversifying the investment portfolio, given the options they offer. Besides small-cap stocks, to large-cap stocks, mutual funds, ETFs, and Real Estate Investment Trusts (REITs), consumers also have bonds, gold, art, and much more to protect their investments.
Diversification is one of the mantras of investors, since investing capital in different assets, can minimize risk if one of them does not perform as intended.
A well-diversified portfolio allows them to participate in a wider range of investment opportunities and improve profitability. This factor is even more important in times of uncertainty, as diversification helps avoid significant losses compared to investing in a single asset.
Once a diversified portfolio has been set up, it is important to invest at regular intervals, because investing a fixed amount each month –regardless of whether the markets are going through a good or bad time– can help avoid paying too much for an asset when its price is hovering around a high.