As the world cruised optimistically into 2020, financial markets continued their positive trends. The U.S. was in its 11th year of a bull market although concerns about a recession and uncertainty around tariffs put on a bit of a damper.
At the beginning of February, the Dow Jones, NASDAQ and S&P 500 hit all-time highs, but that ended quickly with the news of the coronavirus pandemic that kicked off a bear market on February 20. Over the course of about one month, stocks dropped almost 30%, the largest downturn since 2008.
The financial world has plenty of nicknames and acronyms that can make it intimidating to try to learn. And the way 2020 has been going, you may be thinking that stashing your cash in your bunker along with your 6-month supply of food and toilet paper sounds safer than investing in the stock market.
But surprisingly, the markets in 2020 have rebounded, and learning to invest doesn’t have to be overwhelming. Start by getting a quick refresher on the basic terms of investing. Second, read up on the definitions of bull and bear markets so those news reports will sound a little less weird. Then, take a look at these tips for how to invest in the back half of this crazy year.
Tip #1 – It’s worth repeating: get your emergency fund in tip-top shape.
Investments can be short- or long-term, but there’s no point in locking up your cash just to pull it back out again. Make sure you have the right amount set aside in an easily accessible account (ideally, a savings account that earns a little in interest or dividends and gives you the ability to make withdrawals whenever you need it). Once you have an at-the-ready savings account established and funded, you can think about putting your money into other assets.
Tip #2 – Consider short-term investments.
Short-term investing is considered anything less than three years. It also usually means lower risk (because the money is more accessible), but also lower reward.
- One year or less – savings and money market accounts, cash management accounts (CMA)
- Two to three years – treasuries (T-bills, T-bonds, T-notes), bond funds, Certificates of Deposit (CD)
- Three to five years – CDs, bonds, bond funds, stocks
For each of these, as the length of time increases so does the potential interest rate, but as well as the potential risk.
Tip #3 – Think long-term.
If there’s one thing we’re all holding onto, it’s that this pandemic can’t last forever. Life may look different, but with the advent of a vaccine or herd immunity, we will be able to resume a more familiar daily life. The economy will rebound as well, continuing its usual cycle of ups and downs.
For this reason, it’s always wise to have some money invested for the long-term. A good example is retirement accounts. You plan to put this money aside for 30-plus years so it can grow until you stop working and need it for daily living. However, there are still lots of investment options to choose from based on the level of risk you’re willing to take on.