Investment Opportunities in Times of Financial Crisis

It looks like the stock market is not the favorite place for anyone these days. Every day brings another disturbing news or commentary. Another stock tanked. Another bank failed. And so on.

The financial marketplace is now marked with extreme volatility and investments resemble quite a lot lottery tickets - unpredictable and surprising rallies in the value of stocks and bonds are followed by sudden significant drops. No wonder that so many investors sell up and run away from the stock market, which only worsens the situation and further pushes the stock market down.

So why should you be the one to go against the current? Is it wise to invest in stocks right now?

Actually, it is. Now that everyone else is selling it is one of the best times to invest in stocks.

"Be Greedy When Others Are Fearful"

Remember that famous Warren Buffet's quote?

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Right now fear has seized the stock market and to many investors it seems like it is the end of the world now. However, it is not. The economy and the market will recover even if it takes longer than expected. Thus, what you can do in times of crisis like the current one is take advantage of the attractive prices and fearful environment. 

Of course, this does not mean that you should invest in companies with bad outlook. Before you make a major, long-term investment, do your homework and find companies with strong and experienced management teams, good track records of profitability and growth, and innovative R&D.

You may not find extraordinary bargains but there are certainly some nice bargains for patient investors committed to gains over the long term. There are many companies that the general market has dragged down to very low prices despite their great product lines.

Invest Based on Your Objectives and Age

Do not forget that both your age and objectives should play role when you are choosing your investments.

If you are young, far from your retirement years, you can afford a little bit bigger risk. Surely, it is painful to watch your investments drop significantly. And it is very easy to give in to the fear when a stock in your portfolio drops 50%. But fear is not a good guide to decision making. While sudden financial losses may be indeed indicators that even worse drops in value lie ahead, they can just as easily be followed by an upswing.  

Selling now and moving to safer investments (such as US treasuries) that will provide only 2 or 3% rate of return will not get you to your goals and will certainly take you too much time to even get back to where you were before the market went down.

On the other hand, if you are near your retirement you should choose more stable and safer investments. First, you might never be able to recover from a significant drop since you have much shorter timeframe to work with. Second, since you are going to need your money sooner, you may be forced to sell your assets at their lows.

Conclusion:

Surely the current financial/credit/housing crisis caused tremendous losses and sent many investors "racing" for the exits. Yet, remember, when the real estate and the stock market are going down, this is still equal to both crisis and opportunity.

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For knowledge we can highly recommend you subscribe to the The Wall Street Journal.

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