These are scary times. No one is sure about how the coronavirus will affect society, or how long for.
Every day the news seems to change. Travel restrictions are being implemented, meaning some airlines are suspending flights. Mass gatherings are being cancelled, and many people are panic buying in anticipation of shortages or a lock-down.
As this is a rapidly changing situation, the information available seems to be unclear. Therefore, it is no surprise that stock markets throughout the world have taken a pounding. It should be noted that these are probably early days.
Investors hate uncertainty. I suspect that the market will remain volatile for a long time to come. In the past month alone, the FTSE 100 has lost roughly 27% of its value.
Is now the time to sell your stocks and move across to a ‘safer’ asset, like gold or cash? Let’s take a look.
The case to sell
It takes a lot of nerve to be buying stocks when everyone around you seems to be selling.
I believe it is important to remember the reason why you bought the stocks in the first place. Hopefully, you have investing principles that you stick to. It might be that you only buy shares in companies that are well-managed and have a competitive edge over rivals.
If nothing has changed, I usually question why someone would sell their ownership in a company. But this situation is different. These are unprecedented times and no one is sure how the coronavirus crisis will affect business. Certain industries will be harmed more than others.
It is better to cash out of a business that is about to fail. However, this is hard to predict, and a business that appears to be on the ropes could see its value surge when the coronavirus has passed. It is worth remembering that by selling, you will turn a paper loss into an actual loss.
Now might be a time to buy quality shares at a price below intrinsic value.
Why I’m buying stocks
To date, I have not sold a single share, despite the value of my holdings falling.
However, in these early stages, I have not bought any individual shares. I am still unsure about what companies or industries will be affected.
Yet, I realise that successful investing requires a long-term outlook. No one knows how long the coronavirus will last. However, I remain confident that UK businesses will be successful over the next 20 years.
That is why I am currently buying stocks in index funds. With the stock market plunging to its current levels, it is a challenging environment to invest. However, I believe by buying a regular amount in an index fund, investors could benefit from pound-cost-averaging, helping to ride out market slumps.
This is a fast-moving situation and grasping the facts is challenging. For those reasons, although picking up a bargain stock is probably possible in the market, I believe purchasing index funds could be a safer option.