COVID-19 and the oil price war
For many, investing in turbulent times like these seems both incomprehensible and abstract. But what does history really tell us? And how does one get out of this crisis – not only unscathed – but also stronger?
- 9.8% annually – stock market historical returns (S&P 500)
- Recessions are passing – the market is returning to its former strength – and continues to rise.
Increased risk – increased expansion
Crisis times come and go. Currently, your short-term risk is increased, mainly due to the corona crisis and the oil price war. This is seen by the increased stock market volatility. An important rule of thumb is that during times of crisis one should spread his/her risk as much as possible. One should not stop investing – one should diversify his/her portfolio. For example, real estate bonds, fixed rate real estate assets or commodities – assets that have historically performed well during recessions and provide security and stable returns.
Does it make any sense at all to invest now?
It is difficult – if not impossible – to try to time the market. Nevertheless, investing in times of economic downfall is historically a good idea. Looking at the stock market’s most significant index – the S&P 500 – you can see that the total historical return over the last 100 years has been 9.8% annually. History shows that recessions are passing regulations – and that the stock market is not just returning to its former strength, but is continuing to rise. It is almost pointless to wait for the perfect timing of a double bottom formation in the market, as this is in practice completely irreversible.
On the other hand, it makes sense to trade assets at lower prices than what they might be worth in the future – always. A world without the corona crisis and the oil price war is slowly returning. Therefore, good investment opportunities are arising in times where the majority are blinded by fear and uncertainty. It is precisely this uncertainty and restraint that creates prices that are to profit from, especially for them that exhibit due diligence.