Should I buy stocks during the coronavirus crisis?
Stock markets have been one of the biggest causality of the pandemic. Frequent highs and lows have shaken the trust of investors. The past two years have been uncertain. However, with the rollout of Covid vaccines and world economies slowly showing the signs of recovery, now might be a once-in-a-lifetime opportunity to make a fortune out of the stock market investment.
In today’s article, we will be answering four of the most common questions every stock market investor has on their mind:
- Should I invest in stocks now?
- Will the market recover or crash this year?
- What stocks should I purchase?
- How to safely invest in uncertain times such as these?
Will the stock markets crash again in 2021?
Short Answer: We don’t know.
Long Answer: A stock market crash is a sudden fall in the stock value, resulting in a drop in their share price. During uncertain times, some investors panic and start selling their shares, fearing that the prices of their stocks will fall further and they will lose more money. Others follow suit, resulting in a stock market crash. This can happen at any time, and no one can accurately predict the future.
Similarly, when the stocks rise quickly, there’s always a risk of falling just as much. We have already seen it pan out several times in the past. In recent months, the FTSE 100 share price has reached new highs, which can catalyze a fall at any time.
That said, no one can predict when will the stock market crash again in 2021. Therefore, it’s best not to overthink it. All you can do is assess all the risk factors that have the potential to impact the stock market and your investments in particular. This way, you can diminish your loss in case the stock market falls again.
Is now a good time to invest in 2021?
Well, the answer to this question depends on what stocks you are investing in. Sure, the future of some businesses looks bright and positive. The same cannot be said about all companies. So, invest wisely. Don’t invest just because someone you know said you should. Instead, do proper research about the company you are investing in.
That said, we believe there are several reasons you should be hopeful about the stock market situation going forward. These are:
- After successful vaccination drives and a majority of the population gets vaccinated, we will see economic activity back on track. Expect an increase in the movement of goods, services, and consumer spending.
- Industries – such as entertainment, travel, and hospitality – that came to a halt during the pandemic will start reopening, increasing the overall business activity.
- Expect more takeovers. Wm Morrisons shares increased 30 percent after multiple private equity firms started circling the UK supermarket chain.
- Because of the low interest rates, people will start investing or spending.
Now, all is not well and sundry. Below are some reasons you should be cautious about investing in stocks at the moment.
- New Covid19 variants like Lambda and Delta have continued to spread all over the world.
- Several of the government’s support schemes are ending in the near future. The US central bank is also ending its support of the bond market and other Covid19-support measures taken earlier by the government.
- Since March, stock markets have seen a fair share of the rise. That means a fall may not be far behind.
While a crash may come out of the blue, the opening up of world economies shows there’s very little catalyst to expect one.
What are the best stocks to invest in right now?
As per our expert analysis of the market situation, below are some of the companies worth investing in.
Wise – previously known as Transferwise – has been seeing a bullish trend ever since it got registered with the London Stock Exchange back in early July. It’s a money conversion and transfer service opening worldwide. Recently it unveiled plans to branch out into other areas of financial services, making it an exciting option for investors.
Morrison is another excellent candidate. Its share price has been rising ever since a US private equity firm offered £5.5 Billion to purchase it. Although Morrisons rejected the bid, two other companies showed their interest, prompting an increase in share price. Overall, supermarkets have done reasonably well during the pandemic. So, investing in Morrison should be the safest option on this list.
The nascent tech venture Fastly has also been on the radar of seasoned investors. While its shares dropped earlier in June due to a significant internet blackout, its recovery has been impressive since then. Fastly stocks are also on the upwards trajectory.
Nissan has unveiled plans to set up a £1 billion electric battery factory in Sunderland. Going forward, its shares are bound to increase in value.
Similarly, Blackberry, BT, Biogen, Avast, Seraphim Space Investment Trust, MongoDB, and Teladoc Health are also worth considering.
The ups and downs of the market
The stock market has been very volatile ever since the pandemic ravaged world economies. While the UK’s FTSE 100 and the US S&P 500 have moved upwards, it’s been a bumpy road so far with lots of detours.
For some companies like Burberry, the share price took a hit after announcements like the CEO stepping down. For others like Clover, health stocks doubled their initial price after Redditors set their sights on the health company. Later on, its prices fell again when the big investors lost interest in its stocks.
All this chaos had all the hallmarks of the Gamestop saga when amateur day traders banded together to buy its stocks prompted by signals on the popular social media platform Reddit.
Likewise, other companies like Peloton, Netflix, and Deliveroo all present a similar picture of the stock market fluctuations. These three companies are being termed the corporate winners of the pandemic. Netflix gained 16 million new subscribers, Deliveroo got a $575 million investment from Amazon, and Peloton’s shares skyrocketed, posing an approximately 400 percent increase. But, all of them took several hits along the way.
Therefore, you should consider the stock market fluctuations before investing. If your purchased stock takes a hit along the way, don’t panic. That’s the first rule of the stock market investments.
Is it worth it to buy stocks?
Whether you should buy stocks or not depends on several factors. Here are eight things to consider before you make up your mind.
- Market Volatility
How volatile is the market at the moment? Remember, trading equities can be highly volatile when the market is uncertain. At the moment, the world still hasn’t fully recovered from the pandemic. Cases of new Covid variants such as Delta and Lambda are still on the rise. These new variants can evade old vaccines and wreak havoc, yet again.
- Don’t underestimate the Context
Context is everything in stock trading. If a stock is expensive at the moment, it can still be a very lucrative investment opportunity. What you pay for them at the moment may look cheap in the next 10 years. We are heading for another decade of almost zero interest rates, low inflation, and low growth. Therefore, in such situations, businesses located in growing markets tend to do well.
- Equities are not all equal
Every equity is different. Even if there are some similarities between the two equities, they can still behave very differently. Those which seem cheap at the moment may, in fact, be expensive in the future. Likewise, what may look expensive right now may fade away in the following years. So, make sure you don’t compare apples to oranges when investing in stocks.
- Go against the flow, Sometimes
Investing in a volatile market can be challenging, but sometimes going against the flow can be an excellent decision. However, first, you should decide whether you believe the market will get better when you need the money.
- Play the Long Game
Stock investment is for the long term, so you should play the long game. A loss will only be a loss when you sell your stocks at a low value. Shares can rise or fall all the time. Consider how quickly you will need to withdraw your money and whether you can handle it if the market keeps on touching new lows.
- Use ISA
In order to protect your gains from CGT (Capital Gains Tax) and dividend tax, always hold your shares in an Individual Savings Account. It’s an excellent way to build upon your savings without worrying about your tax regime.
Also, consider market inflation. As the interest rates at the moment are at their record low of 0.1 percent, a savings account will not help. Once you account for the rising cost of living (or inflation), you will undoubtedly be worse off. Therefore, consider which account will benefit you in the long run.
- Buy a Pool
As they say, don’t put all of your eggs in one basket. Likewise, investing in a pool of shares is better than investing in a single one. You can also invest in a fund if you don’t want to choose for a basket of shares yourself. Investing in a fund is a much better option as they regularly track major stock market indexes like the S&P 500
Best Investment Sectors Right Now
We talked briefly about the best investment companies earlier. In this section, we are examining different sectors of the economic activity that are poised for structural shifts. Hence, these sectors are in a position to offer optimum stock gains.
With everyone shopping from the safety of their home, it’s no wonder the eCommerce market is on the rise. The reason being, it’s no longer a convenience. Instead, it has turned into a necessity. And the trend is likely to continue in the future. Amazon, Shopify, Ali Baba Group, Walmart, and the JD Group are some of the most obvious candidates in this category.
Fintech and the Payments sector
Businesses that help people with their remote work or let them pay for services/goods are also worth looking into. As almost the entire workforce has resorted to working from home, their dependence on Fintech and Payment Gateways has marginally increased. We already mentioned how Wise is making gains. Other companies worthy of investment in this sector are Paypal, Goldman Sachs, Payoneer, and Square.
Green and Renewable energy sector businesses are likely to grow irrespective of the pandemic. We have already seen a drastic fall in the price of constructing green energy projects, thanks to a greater awareness of the global climate crisis. Some people even see the pandemic as nature’s response to rebalance the ecosystem. Nevertheless, it’s a powerful trend, which is unlikely to derail in the future. What’s more, companies associated with green energy often get special subsidies and tax exemptions, making their stocks much more profitable.
Online Video Gaming
Online video gaming businesses proved to be highly resistant to the pandemic sell-off hysteria. Not only did they survive the pandemic, but they also have actually thrived. Experts are already estimating 2.2 Bn dollar market capitalization by the time 2021 ends. So the Investors who are really stuck inside this addictive product will definitely see growth in the coming years. Some of the companies that hold great prospects in this category are The9, Nintendo, and Scilly.
Why should you drip feed?
In uncertain times such as these, it gets tough to perfectly time the market and make the most out of your investment. For instance, if you invest when the market is making gains, you may have missed the boat to get the most returns out of your investment. Similarly, if you invest when the market is falling, there’s always a risk of stocks continuing their fall and you losing money. Therefore, drip-feeding your cash can be an excellent investment strategy.
In drip feeding, you invest your money in portions instead of going all in. Thus it lifts the heavy burden of making this hard decision from your shoulders. Moreover, it encourages savings, smoothens the investment journey, and further lessens the risk of loss.
How do you get dividends?
A dividend is a share of the profits which a company pays to its shareholders. Companies that pay dividends are, therefore, almost always lucrative for investors. Experienced investors always have a few dividend-paying stocks in their portfolios. Keep in mind, though, dividends you get are subject to the tax regime.
However, as the pandemic has impacted the growth of several businesses, their dividends have also been reduced. For instance, throughout the last year, UK’s banks like Barclays, HSBC, Standard Chartered, and Santander suspended buybacks and dividends.
Should I invest now? The rules
In the end, follow these four golden rules whenever you are planning to invest during volatile times.
- Stay calm and don’t panic.
- Always consider your goals in mind
- Utilize tax reliefs
- Drip feed
With that said, we hope now you have all the information you need about whether you should invest in stocks at the moment. If you think we missed a critical aspect, then do let us know in the usual place. Thank you for reading!