Coronavirus and investments

Coronavirus and shares – why are prices falling?

Share prices are determined by supply and demand. Investors buy shares in hopes that their value will increase in the future. Since the coronavirus pandemic is making the future uncertain, investors are unwilling to pay as high share prices as before, or they want to sell all of their shares.

When prices fall, security prices gradually stabilise at a new, lower level where supply and demand meet again.

Coronavirus and mutual funds – why are the values of many funds falling as well?

For many clients, mutual fund investing is the first step in the world of investment. Mutual funds are managed by experts. Their risks are diversified as the funds’ assets are invested in dozens or even hundreds of shares or other securities.

When the values of the shares or other securities owned by the fund (depending on the type of the fund) fall due to the corona crisis, the value of the fund falls too. The value of a fund is determined by the prices of securities it owns. When security prices are falling, the value of the fund portfolio falls as well.

Coronavirus and investments – five tips for investors

1. Keep calm!

Stick to your investment plan, even if it may feel difficult. In long-term investments, market fluctuations are normal. Over a time span of several years, individual causes of instability, such as the corona crisis, play a minor role. Investors’ best protection against falling prices include an efficient investment plan and an effectively diversified portfolio.

However, if you are distressed about the situation, we recommend that you consider switching to less risky investments, rather than exiting the market and transferring your funds to deposits.

2. Every bear market is followed by a bull market – just keep hanging on

Remember that if you exit the market now for a longer period, it’s very likely that you will miss out on price rises.

“In history, share prices have risen and provided high returns over the long term,” says Kai Kalajainen, Director, Wealth Management at OP. Long-term observation reveals various types of crises, from wars to the financial crisis. Although stock prices have fallen, they have always rebounded and eventually exceeded the previous record highs.

Presumably, the effects of the corona crisis on investments will also be temporary – history has shown that markets have recovered surprisingly fast even from large price falls.

3. Buy and hold strategy often leads to the best results

The buy and hold strategy is more likely to provide better results than trying to sell at peak prices and buy at the bottom.

“In the short term, we expect continuing uncertainty and fluctuations. However, the situation will calm down at some point and markets will begin to stabilise,” says Kai Kalajainen. Patience is a virtue, also when it comes to the corona crisis and investments.

4. Is this a good time to buy?

If you’re not afraid of taking risks, you should consider buying more mutual fund units or shares now that prices are clearly down.

If your investment horizon is several years, it’s highly likely that prices are now at a lower level. If you decide to buy, we recommend that you do it gradually, in several batches.

5. A monthly investor is always in the market

Monthly investment is an excellent way to save your nerves in the capital market. The easiest way to do it is through monthly investments in mutual funds. This way, you will be in the market when stock prices go up and when they are low.

(Source, op.media: Investor, calm down! Five value-for-money tips for a long-term investor) (in Finnish)