The U.S. credit rating has been downgraded by S&P. It happened on Friday night, after the markets had closed. The news has thrown equity markets into a frenzy of selling. For many people, the specter of the 2008 financial crisis is rising again. However, it needn’t be that way. One of the cardinal rules for investors is to buy low and sell high. The current environment provides you with just such an opportunity. So, rather than joining in the panic selling, do yourself a favor: Step back, take a deep breath, and begin bargain hunting.
Now is a Good Time to Look for Bargains in the Stock Market
Instead of selling everything, take a look at the fundamentals of your investments. Has anything really changed? Other than the current panic, of course. If your investments still have the same basic fundamentals, chances are that they will recover at some future date (of course, there is the chance that the stock market is ruined forever — even though history shows that, over time, you win out if you stay in the market). If you think that this is the case, you can put a little more in your favorite investments.
You don’t even have to bolster your current investments only; you can also look for new bargains. If you are nervous about stock picking at a time like this, there are two options you can consider that might help you come out ahead:
- Index mutual funds and index ETFs: Since these types of investments are linked to the performance of indexes, you can ride market performance. If you buy them now, while prices are low, there is a reasonably good chance that down the road you will benefit. You will have more shares, so that when the market recovers (as it historically has), that will be more shares to be sold at higher prices. Carefully consider index funds right now.
- Dividend paying stocks: When a company can pay a dividend, it is usually an indication that it is doing something right. You can benefit from this state of affairs with a little thought and planning. Dividend stocks are probably on sale right now, and that means you can usually get a good deal on a stock whose company has solid financials and a good chance at recovery. If you are especially nervous about choosing stocks, you might consider dividend aristocrats. These are stocks that have increased dividends every year for the last 25 years. These are stocks likely to recover — and give you good value for your money.
Don’t get caught in the mind set that all is lost right now. Instead, recognize that these types of events represent opportunities. Look for the bargains the midst of all of this market carnage. You might find that you have numerous options to get your stocks at low prices. And, if you think that the market will fall still further, you can buy a little bit now, and save the bulk of your cash for later — when the deals become real steals.