Welcome to the penultimate Monday in March. Just like that, the end of the first quarter of the year is fast approaching.
From the increase in electricity tariffs to the rumoured increase in fuel prices and of course, runaway food prices; this quarter has done some major “gbas gbos” on the budgets and purses of Nigerian households. That’s not without considering the fact that one in three Nigerian eligible to work is currently unemployed. Please bear with me, I am definitely not trying to scare you.
Despite all of this, the Nigerian fintech and entertainment sectors have provided the rays of sunshine we all didn’t know we needed. This to me is a confirmation that things aren’t always as bad as they sometimes seem as there is always opportunity or something good in the midst of chaos.
This week, we will be looking at how to navigate investing during tough times:
- Tune out the noise: when prices or rates are falling, it pays to remember that the worst time to sell an asset is when the market has crashed. This rule holds true for 2 reasons – prices are typically low at such times and you will be selling at a discount. Secondly, any perceived loss is actualised when you sell.
The antidote is to always remember that downturns are cyclical and that patience is the bedrock of investing for the long term. As is written in the bible, “this will come to pass”.
- Do not panic: this is closely linked to the first point as we tend to overreact whenever we panic. This is also not a time to stop investing – the principle of dollar cost averaging will always hold secure at times like this.
According to Investopedia, dollar cost averaging is simply dividing an investment of an equity up into multiple smaller investments spaced out over regular intervals. This principle also holds true for those investing in foreign currency assets such as Eurobonds or Dollar Mutual funds.
- Remember to diversify: Diversification is key especially at times like this as the performance of different asset classes vary per time. This way, if one is performing poorly others can help to compensate.
- Invest in other markets: Some times, the grass may truly be greener in some other places and with diversification in mind; you may also look at diversifying locations and not just asset classes. US stocks for example can now be easily purchased using various platforms.
- Quality matters: At times like this, the phrase “tried and tested” holds true especially when investing in businesses or equities. For example, holding quality or blue chip stocks can help one ride out the season. Also remember that, the best time to buy quality stocks are when prices are falling.
- If need be review your budget or plan: As I have often said, everyone’s wealth journey differs but the constant aspect is that plans or budgets should not be cast in stone. For this reason, we will all at times like this, it pays to review your plans and make amends if required.
Sometimes, the amendments required may not be monetary but with respect to strategy and vice versa.
The trick is to know when an adjustment is required and to execute as soon as possible.
Just remember that investing at times like this requires a balancing act and that tough times don’t last but tough people do.
We will also do well to bear in mind that it is not yet time to relax; and we should keep washing our hands, wearing our masks in public and practising social distancing.
Till next week, please stay safe and if you have the opportunity to be vaccinated, kindly do so.