On the Money

How to invest during a pandemic

Conor Harte

Reporter:

Conor Harte

How to invest during a pandemic

If you're diligent, patient and keep topping up regularly, you can amass a decent sum over the long run

It's hard to beat the stock market as a means for people of average income to build a significant level of wealth.
You start with small sums, and if you're diligent, patient and keep topping up regularly, you can amass a decent sum over the long run. Many have done it.
It's generally true that there's no better time to start investing than now, but what if "now" is during a pandemic. How should you go about investing in the stock market during this ongoing coronavirus crisis.

Should you even start now?
For many people, the answer will be yes. Go ahead and get started building long-term wealth through stocks.

What's different in a pandemic
The early stages of the Pandemic triggered a big stock market crash that presented many opportunities to buy in at a low price. However the market has regained much of what it lost pretty quickly though, and some stocks and indices have recently been near all-time highs.
The Covid-19 crisis however is far from over and there may be one or more big market drops ahead in the near future.
You need to keep that in mind and it is important to keep your emotions in check throughout your investing life, but especially during times of volatility in the stock market.
Don't let fear or panic make you suddenly sell out particularly when a market has crashed or greed make you purchase when stocks are overvalued.
One of the best mechanisms to invest is making regular contributions over time. It can be done by setting up a monthly amount or making quarterly or annual contributions. By investing amounts over time you negate the risk of putting all your investment into the market and then potentially suffering a massive loss if the markets crash at the start.
By investing regularly you may buy in at the top of the market but chances are you will also be in a position to buy in, at or near the bottom so you average out the risk over the full investment. E.g. Investing € 100,000 at € 10,000 per month over 10 months.
Remember that pandemic or no pandemic, you should never invest in the stock market with any money you will or may need within five (if not 10) years. It is a long-term plan and you don't want to have to sell stocks after they've crashed, and the market's performance in the short term is unpredictable. The ability to leave your money invested over time gives you the best chance of success.
There are however some things to be aware of first.

Emergency Fund
With the greater uncertainty around jobs and health it is very important to have a reasonable emergency fund put away in cash.
This should be easily accessible and should ideally cover at least 9 months living expenses. You should have this fund in place prior to investing any funds.

High Interest Rate Debt
If you have outstanding balances on your credit cards which are subject to interest rates in excess of 10% pa you should consider using spare funds to pay these down.
If you are making an average of 5% on your investments and paying in excess of 10% on your debt then you are losing money in reality. Mortgages and long-term loans used for purchasing assets would not be considered an issue as their rates tend to be lower.

Pensions
These are the best avenues for long term investments because you get a combination of Tax Relief, Tax Free Investment Growth and in some cases Employers Contributions. This combination gives you a great head start over any other mechanism for investing. For this reason it should be the first consideration no matter when you are planning on starting.

Multi Asset Funds
For your average investor these funds give you the best exposure to an array of asset classes like stocks, bonds, property and alternative investments under the one umbrella. You have a choice between actively and passively managed funds managed by established fund managers. The main reason these are good for the average investor is that you get diversification within the fund and you can pick one that is within the level of risk that you are happy to take. The fact that they are open ended and you can top them up regularly means that they are ideal for a long-term investment plan.
A sound piece of advice from John Bogle who was the founder and former chairman credited with the creation of the first index fund available to individual investors, he said "Don't look for the needle in the haystack. Just buy the haystack!"
There is a never and right time or a wrong time to start investing. Trying to predict either the Top or Bottom of the market in any cycle is very difficult so investing regularly over time gets around this risk. Crisis like this Pandemic do provide opportunities but the main lesson is to be invested in the market as soon as you can and add funds regularly over time.

Conor Harte BFS QFA CFP® is a Financial Planner with Wealthwise Financial Planning who are based in Block C, Hartley Business Park , Carrick on Shannon, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland.#CI66141