One area where the impact of the health crisis has been felt acutely is energy markets. If you have a portion of your portfolio invested in energy stocks, you have likely seen the value of your holdings decline over the last few weeks.
Before you panic, it’s important to look at the facts and how this can affect your investments in the long term. While it’s difficult to watch the value of your holdings drop in the short term, there is more to investing than the day-to-day swings of the Dow Jones.
Here’s what the global economic authorities have to say about common investing questions.
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Are energy markets safe for investment right now?
It’s important to realize that the term “energy” covers more than just oil producers. Energy players include oil drillers, electric utilities, pipeline and processing companies, refineries and so on.
Because of the worldwide spread of COVID-19, energy markets will continue to be volatile. Currently, the market is seeing an influx of cheap oil from an increase in production. Companies and countries who have a higher break even point on the cost to produce a barrel of oil will be the ones most impacted.
According to experts, there is a price war between Saudi Arabia, an Organization of the Petroleum Exporting Countries (OPEC) member, and Russia, which is not part of OPEC. This is adding to the current energy market volatility, as oil prices have not hit rock bottom yet.
The sudden dip may actually strengthen the market in the long term. In the meantime, the lower oil prices can cause the tightening of corporate-credit conditions for borrowers who are risky. The stress on the market will result in less credit flowing to cash-strapped companies that need it the most.
There is no end in sight to the current market turmoil, including energy stocks and bonds. While COVOD-19 continues to spread around the globe, investors will face wildly gyrating market conditions and have to accept the added risk if they decide to invest in the energy markets.
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Where should I put my money if I’ve already pulled it out of the market?
While some investors may see the sudden drop in stocks as a great opportunity to invest, it may be best to wait out the storm. However, as oil prices collapse with a price war, putting your money in the market can be a wild card.
There is still a lot of uncertainty around the spread of the coronavirus. The World Health Organization declared the spread of COVID-19 a global pandemic on March 11, further affecting global markets.
There could be a potential credit crisis ahead for companies that don’t have sufficient reserves to weather this economic storm. Investors who have limited investing horizons and those who depend on investments for income may want to wait until the clouds have cleared.
How can I prepare for potentially sustained upheaval in the markets?
Energy markets are inherently volatile and the current situation is no different. Investors who put money in energy stocks see the value of their holdings gyrate wildly from day to day and week to week.
The current market upheaval has no end in sight, so it’s best to prepare for prolonged turmoil. Don’t try to time the market since we still don’t know the far-reaching implications of the coronavirus pandemic.
In times like these, it’s best to recalibrate your savings goals and focus on amplifying your financial security. Figure out the best ways to cut costs while staying prepared for what lays ahead.
The worst time to make decisions about selling your investments is when markets are unstable. Don’t panic but stay the financial course that will help you reach your goals.
Focus on cutting costs and optimizing spending so you can weather the financial storm. This will give you more flexibility and options in case of a financial downturn and a prolonged financial crisis.
How should I change my retirement plans if I’m in the market now?
The first thing to remember in the midst of this turmoil is that the stock market is not the entire economy. With the coronavirus outbreak, the market has been in free fall, which can cause even the most steadfast investors to take a pause.
How you need to address your retirement plans will depend largely on how soon you’ll need the funds. Your focus should be on security and limiting the risk with such uncertainty in the stock market.
Maintain control over your money with financial tools that empower intelligent savings and investment. Try to take your emotions out of the equation as much as possible. It’s easy to panic and press the sell button on an investment when it plummets, in effect locking in your loss.
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If you don’t already have an emergency fund, consider stashing away as much as possible now to weather future financial storms. If you have a balanced retirement portfolio, there is no need to make any big changes.