- On Wednesday, the Dow entered a bear market after plunging more than 20% from its February peak.
- Investors are panic-selling after WHO declared the COVID-19 a pandemic.
- While it is tempting to sell, staying invested in the stock market is the best thing to do.
Our worst fears have come true. We are now in a bear market.
On Wednesday, the World Health Organization (WHO) officially declared the coronavirus outbreak a pandemic. Cases of coronavirus will continue to climb and spread throughout the world. As of Wednesday, 118 countries reported over 120,000 confirmed cases of COVID-19. More than 4,300 people have died.
The Dow has plunged more than 20% from its peaked reached in February. | Source: Yahoo Finance
Markets have reacted strongly to the bad news. The Dow fell more than 6% on Wednesday. It is down more than 20% from its February peak, meaning it has officially entered a bear market. This marks the end of an 11-year bull market.
Stay Invested and Dont Panic Because Of the Bear Market
In a bear market, investors fears of running out of money can propel them to sell all of their stocks. It might seem the logical thing to do, but it isnt. If you invest in a long-term goal, such as your retirement, downturns shouldnt worry you. You shouldnt even look at markets every day. It will only create unnecessary anxiety.
Instead, you should stay invested because eventually, the markets will turn bullish again. Nobody knows when the markets will start to recover, but if you sell all of your stocks, you might miss the sharp rebound that will eventually happen.
In 2008, the Dow plunged about 34%. But all these losses have been erased in subsequent years. Dont let your emotions and your fear drive your investment decisions, as you might regret it later.
Emotions can make investors act irrationally. | Source: Fidelity
Diversification Is Essential
In all kinds of markets, you should diversify your portfolio. Diversifying among equities and bonds is one thing, but you should also diversify your portfolio among sectors and industries. During a market crash, consumer staples tend to perform better than technology stocks. Consumer staples are non-cyclical; that is, they are not affected by the economy. Recessions can profoundly impact technology and other non-cyclical stocks, so its better not to own just these stocks.
Buying only Treasury notes is not the best idea, as their yields are so low they dont even cover inflation. The yield on the 10-year Treasury note has dropped below 1% as investors are rushing to safety. By holding a portfolio that is too conservative, you risk not having enough money for your retirement. You have to take some risk if you want to have decent returns in the long-term.
While coronavirus panic and bear market fears can cloud your judgment, you can get through these hard times with your money still intact.
Disclaimer: This article represents the authors opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Aaron Weaver.