Well, are you? Here's why I think it's important to be prepared for the ASX to fall again.
Where are we now?
The All Ordinaries (ASX: XAO) fell almost 40% in late February to late March, with the S&P/ASX 200 Index (ASX: XJO) riding its coattails falling just over 36%. This sent the ASX into the shortest bear market in history. Following this, however, and just as quickly, was a strong gain with the ASX rising just over 20% to enter bull market territory again.
Sit down if you're feeling dizzy. It's understandable. And goes to show just how difficult it is to predict the market's movements.
Where to next?
Some portfolio managers are saying that this could be the best investment opportunity in a decade. Meanwhile, Harvard professor Kenneth Rogoff believes that it's virtually impossible to predict the endgame of this crisis, which could prompt market falls exceeding those experienced during the GFC.
I would tend to agree with both of these sentiments. I agree that the COVID-19 pandemic has created opportunity for ASX investors and it's impossible to know where the turning point is. We may have seen the bottom on 23 March, or it could still yet be to come.
One thing that will remain the same is how I will continue to invest throughout these uncertain times – not trying to pick the bottom, but investing consistently. That's what I did throughout March. And if we see the ASX enter another correction, you can bet I will be doing it again. With this, I've got my eyes on ASX growth shares such as Altium Limited (ASX: ALU), Audinate Group Ltd (ASX: AD8) and Medical Developments International Ltd (ASX: MVP).
Will you be ready?
A number of people asked me in March if I believed it was a good time to invest in ASX shares. I told them the approach I was taking, mentioned above. I also said that looking back 3 years from now, I believe this period will appear to have been a great time to be investing.
However, I don't believe many of them made any investments, thinking (out of fear) that the market still had further to drop. As a result, they missed the subsequent bull market. Maybe they will be proved right and the market will fall further. Who knows. But will they choose to invest if it does? Or sit on the sidelines again? I have a gut belief it will be the latter.
That's why I think it's important to be ready, not just financially but also mentally for a correction or a material fall in the ASX. Of course, I think you should continue investing if another correction or bear market doesn't materialise. But I always like to have a little spare cash on the side in case one does, so I can take advantage of ASX shares I believe to be irrationally underpriced.
In my view, if that correction or bear market does eventuate, and you've prepared your mind and are focused on 3 to 5+ years from now, it will be easier to stay the course.
