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The economic fallout from the coronavirus pandemic has got many of us looking for new ways to make the most of our money.
That’s spurred a surge in demand for financial advice and investment opportunities, particularly among young people. So far this year, online stock trading has skyrocketed, with transactions on platforms like Robinhood, eToro and Raging Bull jumping up to 300% as new millennial investors pile in.
Yet, knowing where to start can remain tricky.
Less experienced investors are generally advised to kick-start their investing careers with regular, automated installments into low-cost, passively-managed funds. Exchange-traded funds or index funds, for instance, provide access to a broad range of stocks with strong long-term growth potential, and require little involvement on your end.
More experienced investors, and those with more time on their hands, may prefer to opt for individual stocks. And with many industries now performing well below their pre-pandemic levels, there are real opportunities to be had, according to investment experts CNBC Make It spoke to.
Technology
If there’s been one beneficiary from the current downturn, it’s technology, experts said. The rapid transition to remote work and schooling, as well new demand for online services from health care to shopping and entertainment, have seen the sector outperform all others.
“The standout is information technology, which is actually up for the year as of this writing,” said Arielle O’Shea, investing and retirement advisor at personal finance company NerdWallet.
This crisis might accelerate the trend towards more digitization.
Tuan Huynh
chief investment officer of emerging markets, Deutsche Bank Wealth Management
That presents a good short-term investment opportunity as demand for tech products continues to rise under ongoing lockdowns. But it also points to a long-term play for the sector, given its “strong fundamental trajectory,” noted Fidelity’s sector strategist Denise Chisholm. Indeed, the crisis may have increased its growth potential.
“This crisis might accelerate the trend towards more digitization, as ‘work from home,’ ‘video conferencing,’ and ‘groceries online-shopping’ creates additional opportunities,” added Tuan Huynh, Deutsche Bank Wealth Management’s chief investment officer of emerging markets.
Consumer discretionary
Another strong performer in the downturn has been the consumer discretionary sector, which includes retailers and food and entertainment businesses. Though negative for the year, the sector has managed to beat the overall market. NerdWallet’s O’Shea notes that’s because they offer consumers some relief at this time.
“They all touch on things consumers or businesses are still spending our money on … purchases that help employees work from home, help families get supplies from home and help us generally pass the time,” she said.
In fact, eras of lower interest rates — such as that being ushered in by the U.S. Federal Reserve — often preempt growth in consumer spending over the medium term, said Chisholm.
“Some of the highest outperformance odds for this sector has come using recessions as the starting point,” said Chisholm. “Elevated savings have led to double the average historical consumption growth over the next three to five years … said differently, the U.S. consumer may have more firepower than investors expect.”
MoMo Productions
Health care
Health care, meanwhile, remains another sector ripe for growth as pharmaceutical companies race to find a vaccine for Covid-19 and medical institutions move to remote ways of working.
“Health-care companies are still well positioned for ongoing innovation,” said Deutsche Bank’s Huynh, noting companies’ strong balance sheets and scope for mergers and acquisitions.
So far this year, the sector has also outperformed the wider market, noted O’Shea.
Energy
Finally, the energy sector — which has taken a pummeling amid sinking oil prices and continues to lag other sectors —shows signs of a strong recovery, noted Fidelity’s Chisholm.
For long-term, buy-and-hold investors, it’s wise to have exposure to all corners of the market.
Arielle O’Shea
investing and retirement advisor, Nerdwallet
“Energy has managed to outperform historically despite a deterioration of fundamentals,” Chisholm said.
“Although the recent demand decline is unprecedented, history highlights the strong tendency of stocks to look through sharp declines to a second derivative recovery,” she added.
Starting out
Online trading platforms and brokerage firms make it easier than ever to invest in individual stocks and sectors that you believe have strong growth potential.
However, investments are always unpredictable, and it makes sense to cover yourself by building a diversified portfolio, experts advised. That may include investing in a variety of sectors, as well as a range of asset classes, such as bonds, which can offer lower volatility during a downturn.
“For long-term, buy-and-hold investors, it’s wise to have exposure to all corners of the market, through index funds that track broad market indexes like the S&P 500, rather than picking and choosing sectors,” said O’Shea.
“If you chase sectors that are doing well right now, you are buying high, which is the opposite of conventional advice,” she added.
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