Experienced Pro Advice for New Investors in a Recession

Some millennials and Gen Zers found themselves unemployed and bored during the Covid peak, but also gained sudden access to cash thanks to stimulus programs and increases in federal unemployment benefits. And the market crash caused by the pandemic provided an easy entry point for investment.

The casino was open and everyone was winning big. These new investors had less wiggle room when it came to losing money, but hey, they never experienced a market crash or recession.

For novice investors, things change quickly.

Buy first, ask later

About 15% of all current US stock market investors say they first started investing in 2020. Swabian poll — and most of those who opened their first non-retirement investment account in the same year were under 45 and had lower incomes than other investors, FINRA study found. In just the last two years, about 20 million people have started investing.
On the wave of liquidity, “first they bought, and then they asked questions.” with promotions of memes, SPAC, NFT. There was a lot of what I call indiscriminate buying,” said Leo Grochowski, chief investment officer at BNY Mellon Wealth Management.

Charlie Munger of Berkshire Hathaway described the stock market during this period as “almost a speculative mania”, adding that “we have people who know nothing about stocks, who are advised by stockbrokers who know even less.”

Now “the casino is closed,” Peter Malluk, president and CEO of Creative Planning, an asset management firm, told CNN’s Paul R. La Monica. The mood has changed in digital communities like WallStreetBets Reddit, where young investors used to gather during good times to post memes about stocks only going up. “It turns out that investing is quite difficult when the faucet of free money is closed,” written by one userWith another adding, “I blew my savings and portfolio. I don’t even have the money to lose more money in the stock market, so I’m leaving.”

But experienced professionals say that this is not an option. Here’s what they offer.

Don’t panic, learn from it and keep going.

Investors may panic, Grochowski said, but they shouldn’t completely withdraw from the markets.

“Honestly, I hope the lessons learned are that a ‘buy first, ask questions later’ strategy is never a good strategy — and that fundamentals and valuation do matter,” he said. “This will prove to be a better entry point than an exit point for long-term investors.”

Grochowski acknowledged that “this is a test” for investors who are suffering big losses, but he believes that “the market will get better ahead.”

Other longtime investors also preached the need for perspective.

“In every bear market, it seems like the end of the world is near while it is happening,” wrote Ben Carlson, manager of Ritholtz Wealth Management. in a recent note. “In every bear market, we have a technical analyst who draws an analogy to 1987 or 1929 using an overlay chart that gives the impression that we will get the mother of all crashes again.”

But “every second bear market in history is a huge buying opportunity until the next,” he added.

How to survive a recession

Indeed, “when markets become more volatile and weakness prevails over strength, we always remind investors that panic is not an investment strategy,” he said. Liz Ann Saunderschief investment strategist Charles Schwab.

She recommends that active investors choose stocks based on factors such as cash-rich and low-debt balance sheets, positive earnings changes and low volatility.

Saunders noted that sharp upswings are the norm during bear markets, but investors should be prepared for an extended downturn. “Aggressive Fed policy, liquidity reversal and economic slowdown are likely to put pressure on stocks,” she added.

Given all these concerns, the advice to “don’t panic” may seem like difficult advice. One way to avoid this is to make sure you have enough off-market resources to weather the crisis,” said Mark Ripe, managing director of the Schwab Financial Research Center. If you can hold without relying on that money in the market, you don’t need to bottom out and risk missing the inevitable bounce. (Remember, past bear markets have generally been shorter than bull markets.)

Schwab Financial Research Center compared the returns of different portfolios during the average bear market and found that investors who stayed 100% in stocks when the market hit its low and then bounced out did better than investors who sold off during the downturn.

So, despite economic uncertainty abounding, investors should remember that volatility is essential to boost long-term stock returns, David Kelly, chief global strategist at JPMorgan Asset Management, wrote in a recent note. Kelly also advised investors to remember that a diverse portfolio reduces risk, valuations are a good indicator of long-term profit potential, and invest with logic, not emotion.

“Very often the best time to invest is when people are most scared and confused,” Kelly writes. “In the world “?” investment principles deserve “!”.

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