Megan Purcell age 7 talks about what she thinks will happen to Easter this year due to the Covid-19 lockdown. Video / Dean Purcell
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The Herald's Cooking the Books personal finance podcast has gone daily in lockdown, to help you get the tips you need to weather the financial storm. Hosted by Frances Cook, with a new money expert featured on each episode.
It's a fact of life that when the market goes down, it's an opportunity for some people.
Some even refer to times like this as the share market "going on sale", because stocks become so cheap.
Buying a share for a lower price means you can buy more, and it takes less profit to make your investment worthwhile.
But doing it successfully requires learning a few standard rules first.
Nick Crawford, senior client director from The Private Office, says people often understand the idea of getting a long-term bargain with consumer goods. But when it comes to investing people instinctively avoid investments with a low price, to go for those with a high price.
"This habit that people get into of buying high and selling low is terrible for your investment values long-term.
"We know what puts people off, and it's the fear that share prices are going to continue to fall, that's the mindset that makes people want to sell during the downturn.
"But the best thing is counterintuitive, to take advantage when shares are cheaper."
If that's what you're hoping to do right now, you need to do it right.
First you need to be financially stable. Nobody knows what life will throw at us over the next few months, as we face down an unprecedented combination of economic and health crisis.
So it's important that you have a healthy savings account, and manageable levels of debt.
Some companies are likely to collapse in this crisis, and you need to factor in that it could be one you work for, or one that you've invested in.
As long as you factor these issues in, history shows that in a downturn there's money to be made.
Crawford acknowledges that the reality some companies will fail is one of the issues that cause people to become afraid.
But he says the way to beat that is through diversification, or in layman's terms, investing in hundreds or even thousands of companies at once.
Diversification is easily achieved through index funds, mutual funds, or an investment portfolio put together by an advisor.
Spreading investments widely allows you to bet that the economy itself will recover, even if not all businesses do. You then get a share of the profits when everyone is back to work, despite buying in cheaply.
"There are bad companies and good companies, and it often takes an economic downturn to see the companies that actually were working well in the first instance. So our advice is always to diversify," Crawford says.
"If you're investing on a regular basis, then you're actually better off with the ups and downs of the market then you are without it."
Crawford says the normal rules of investing still apply, including to invest money that could stay put for several years, and into quality companies.
Listen to the full interview on the Cooking the Books podcast. You can find new episodes on Herald Premium, or subscribe on iHeartRadio, Apple podcasts app, or Spotify, or wherever you get your podcasts. The next episode will cover how Covid-19 has changed the housing market.
If you have a question about this podcast, or question you'd like answered in the next one, come and talk to me about it. I'm on Facebook here, Instagram here and Twitter here.
