Read my Coronavirus (COVID-19) investing strategy to stop panicking and learn about the 2020 stock market crash.
In this guide, I’ll explain my 2020 recession: what happened, and how to manage your money through this crisis.
Stock Market Crash of 2020: What Happened?
To figure out what to do next, we need to first understand what happened in 2020.
On March 9th, 2020, our 11-year stock market crashed, ending the longest bull run in U.S. history.
The S&P fell by 20% in the first three months of 2020. We’re now in a bear market.
The stock market crash of 2020 was the fastest crash in the history of the stock market.
The dark navy line below showed that the market lost 25% of its value in one week, this big of a loss within just a few days is… totally unprecedented!
Wait, Are We in a Recession?
All evidence points to the fact that we will be in a recession.
Our GDP dropped by 9% in Q1 and another 34% in Q2 of 2020. Unemployment shot to 15% when many industries simply stopped.
According to Google, searches for “file for unemployment” skyrocketed like never before:
What is worse is that we are running out of ways to control the economy because the interest rate just became 0%.
When our interest rate becomes 0%, the Federal Reserve becomes useless.
And this means that during a 0% interest rate recession, stocks aren’t the only assets hurting:
- Bond prices will also go down because of the positive effects of interest rates no longer exist.
- Central Bank is no longer in control because printing money and buying debt don’t work.
- Real interest rates will rise and there will be deflation, which will lower oil and other commodity prices.
To counter that… the Federal Reserve started pumping money into the economy. In fact, the Fed pumped so much M1 money supply (chart below) that we are now worried about an inflation!.
Recession of 2020
The economy is in free fall, just like it would during every other stock market crash and recession.
The things you’ve read above is a picture of doom and gloom.
But every recession feels like the world is about to collapse.
Like every stock market crash we’ve ever lived through, this one feels just as unprecedented, wild, and unpredictable.
We are now in in the biggest bull run the world’s ever seen.
Did you see that coming?
Most people who pulled their money out lost BIG TIME!
Fastest Recovery, Ever!
The S&P 500 went from close to $2,000 to exceeding $4,000 in less than one year.
If the Great Depression took over a decade to recover. Then this is the opposite of the Great Depression: it recovered in the blink of an eye, and then went crazy.
So what does this tell you?
Never, ever gamble your long-term investment.
Had you kept your money in the stock market and kept investing, you wouldn’t won BIG TIME.
But if you were so scared that you pulled your money out of the recession, you would’ve lost A LOT.
This pandemic is the BEST lesson of what to do during a recession and how to react to a stock market crash, which is…
Just keep doing what you were doing.
Inaction is the best action.
Coronavirus Investing: How to Manage Money During Crisis
Every recession feels like it’s the end of the world
And this one certainly did – the pandemic is going to kill us all.
But like all events.
This, too, shall pass.
And it did.
It took the Great Depression of the 1920s nearly a decade to get out. It took the 2008 recession 4 years to come back up.
This one took… a few months.
So how do you manage your money when the next crash comes?
Follow these rules.
1. Do Not Panic (Expect Volatility)
The investors are panicking. News stories write about total collapse.
Social media is definitely freaking out.
But you don’t have to panic.
You’ve read my blog. You’re prepared.
We know the market will fall.
And we know the market might fall multiple times more before it bottoms out.
So mentally prepare yourself for more crashes to come.
Right now, you need to think about what will happen in five years, not what will happen tomorrow or even next year.
Keep investing if you believe in five years, life will be better.
2. Do Nothing (Keep Doing the Same is the Best Coronavirus Investing Strategy)
Nobody knows when we’ll be out of this. So what should you do?
Answer is NOTHING.
You should do nothing.
In other words, you should keep doing what you’ve been doing.
Vanguard founder John Bogle once said,
My rule, and it’s good only 99% of the time, so I have to be careful here, when these crises come along, the best rule you can possibly follow is not “Don’t stand there, do something,” but “Don’t do something, stand there!”
Whenever a crisis happens, we have an urge to change and protect ourselves. It’s human nature.
But really, the worst thing you can do is to drastically change your investment behaviors today.
So do nothing, make no changes. And let the panic just slide over.
If you were buying index funds on a recurring basis before, keep buying them.
On the flip side, avoid dumping all of your cash into the stock market right now – more losses might be coming and anyone could be laid off these days.
And in case you’re still wondering, NO – you will not be able to time when the market bottoms out, so don’t even try.
Today is just as a great opportunity as any day to invest in the stock market. And invest like it’s just another day.
3. Strategic Coronavirus Investing (If You Have More Money Lying Around)
And if you have more cash to deploy beyond what I had just described above, I’d recommend that you think about investing strategically throughout 2020 and 2021.
Why should you do that? Because it’s when others are panicking and when the market is crashing, it’s always a great time to invest.
2009 was a great time to buy stocks because the 2008 recession had bottomed out around March of 2009.
But most people didn’t invest in 2009.
Why? Because March 2009 was when everybody was in a complete panic, no longer believing that we would ever get back to normal.
In 2008, the stock market made a failed attempt to bottom in November. And it was not until March of 2009 that the lowest of the low was reached.
As a result, the 2009 crash that was truly the bottom caught people off guard and scared people off.
The same might be happening again in 2020 and 2021.
We don’t really know the longer-term collateral damage of health and business.
If we believe the 2020 trend will follow 2008 (which it might not), then we’ll not be seeing the bottom of the crash until later this year.
Coronavirus Investing: Target Underperformers
One way to invest strategically is to invest in stocks that got hit particularly hard.
Oil prices have declined by 90% to an unprecedented low. Might this be the right time to buy?
Cruise stocks such as Carnival was $50 in January of 2020, and now they’re $8.
If you believe people will go back to cruise travel once this is all over, then this might be a good time to invest in travel.
Delta Airlines stock price is now back to what it was in 2013 – if you think air travel will resume, maybe buy some airline stocks?
Accelerating Winners Deserve Coronavirus Investing
Some people wonder if this global pandemic will completely change how we live, work, and travel.
I don’t think it will.
But I think this global pandemic will accelerate changes that have already been happening.
For example – e-commerce will accelerate, and so will remote work and food delivery services.
In my opinion, Amazon will come out of this as the biggest winner.
Amazon’s plan to dominate the world is already underway, but the global pandemic will simply accelerate the path.
But remember to not put all of your nest egg into single stocks during this still highly risky time.
You should always have enough cash on hand to live for at least 1 year, ideally 3 years.
With the left over money – invest away.
Decide Between Joy and Panic: Living through the Coronavirus
To win, you need the patience to keep investing through the panic.
Your ability to keep doing the right thing for a very, long-ass time will set you apart from those who got too afraid and started pulling out money.
But life is not just about money. You have to live.
So you need to have enough cash to be able to invest – ideally, two years worth of cash.
And treasure your new normal – be it staying home while working, or staying home while out of a job.
We rarely stop and just be still – this is a moment to stop and just be.
If you are sick, hungry, and out of a job – ASK FOR HELP. Asking for help is not a sign of failure or weakness, but quite on the contrary.
Asking for help is a sign of strength and courage.
And if you still have a job and are health, GIVE.
Donate to individuals in your community. Check-in no the old, the young, the struggling parents.
We’re in this together, let’s help each other, love one another, and keep patience and keep the faith.
We will get through this, and we will beat the virus.
So Coronavirus investing your way to a better future, if you can.
Still in a panic? Read my guide: Psychological Hacks to Win During a Recession.
Brush up on stock market crash basics here: When Will the Stock Market Crash? I Predict 2020
Are you ready to start investing? Already investing? Check all the boxes with How to Start Investing: A Step-by-Step Guide