Is a Pandemic the Right Moment to Play the Stock Market? We Asked an Expert

Maybe you’ve been keeping tabs on the GameStop situation. Or perhaps you’re simply curious about day trading in a year that’s seen both economic highs and lows. (A recent piece in Vice called attention to a 2019 report from S&P Global, which proclaimed that only 26 percent of women are invested in the stock market.)

So, how do you dip your toe in? And is a pandemic the right moment to do it? We asked Megan Ananian, head of membership and a general partner at The Helm, an early-stage venture firm that prioritizes investing in women, to talk us through the pros and cons.

Ananian says her advice is the same, whether she’s talking to her best friend or a multi-millionaire: Make sure you have enough cash to live on for at least six months, then allocate a portion of your remaining savings to diversified stocks like mutual funds and ETFs (exchange traded funds). “There is no perfect time to invest,” she explains. “I would recommend investing passively in mutual funds or ETFs because they diversify you across more companies, which decreases your risk that you picked one bad investment. You can also pick ETFs that represent the total stock market or an index of companies like the S&P 500.”

But what if you want to focus on an individual stock? In general, Ananian advises leaving that to the pros, but if you want to participate, the first step is reading up. “Pick an industry you’re knowledgeable about and invest in your favorite companies,” Ananian says. Or—another option if you have money you can afford to lose—invest in an early-stage company before it goes public on the stock market. “It’s more risky, but can also be more rewarding. Typically, you keep this to 10 to 15 percent of your overall investment strategy.” (More info is available via The Helm’s membership.)

Thanks to Reddit, GameStop’s stock was up by nearly 1,000 percent in the early weeks of 2021. But Ananian maintains that’s a serious red flag. “A moment of hype like the GameStop saga is exactly when not to invest,” she says. “You want to invest in the fundamentals of the company, not FOMO. Do you think a brick and mortar video game business is going to exist in the next five years? Personally, I think GameStop is like Blockbuster in 2009, destined to fail due to lack of innovation—it’s just being artificially propped up by a bunch or bored day traders on Reddit.”

It seems like mixed messages—how can the stock market be up and employment be down? Are we experiencing a bubble that is destined to burst? Ananian thinks it’s hard to know. “I think we’re in an asset bubble. Prices are skyrocketing, interest rates are artificially low, the economy is struggling,” she says. “The music has to stop at some point, but I’ve thought that for the past 12 months and the S&P 500 returned 18 percent, so I was wrong.”

Still, even if this is a bubble, she (alongside many economists) doesn’t anticipate a huge crash. “What’s more likely is that we’ll see a leveling off of the massive growth we’ve seen. If you’re waiting for the bottom to fall out, you could be waiting for a long time and miss out on returns in the interim.” Her advice for the next 12 to 24 months? Continue to diversify. “Max out your cash savings first and then buy into large cap US corporations (S&P 500), tech companies (NASDAQ 100) and international emerging markets, then hold for the next 5 to 10 years.”

Particularly if you’re buying individual stocks, knowledge should guide your choices, Ananian explains. “Ask yourself: Who runs the company? If you read an interview or listen to a podcast with the CEO, do you trust them with your money? What is the industry like? Is it growing like electric vehicles or is it an old school company ripe for disruption? How does the company make money? This is all critical info to know.”

And don’t discount your own intuition. “To me, investing doesn’t feel like a gamble—it is based on my vision for the future,” Ananian says. “Do I think travel is going to bounce back after the pandemic? Yes, I do. If that’s the case, do I think the airlines and hotels that are struggling today are going to survive and have a resurgence after this is over? Yes, I do. Well, maybe I should invest in my favorite hotel chain or airline now while their price is down because in my vision for the future, I see them thriving again.”

Diversified strategies—mutual funds and ETFs—are still the best way to start, says Ananian, but if you’re ready to invest in individual stocks (meaning you’ve done your homework and feel well-versed on the companies you might choose), dollar cost averaging is one approach that can help you ease in. “Take the amount of money you want to invest in the next 12 months and transfer it into an investing platform like Schwab, Robinhood, Public, or Alinea,” she says. “Divide that money into four quarters, then invest a quarter of the total once a month for the next four months. That way, you don’t have to worry: ‘Is today the right day?’ What if it’s a bad day for the market?”

We all get antsy watching our money take a dip. But Ananian says what happened last March should be a guide. “Remember the March 2020 stock market crashed when everyone was terrified watching the market creep downwards and some folks sold?” she says. “Just look at how the market has performed in the 12 months since.” In other words, if you’re going to make an investment, you need to feel comfortable leaving it alone, with the reassurance that the market generally goes up, over time. “Don’t worry about bad days or even bad weeks. We all have those. You’re a long-term investor. You don’t care about daily volatility. More importantly, the tax implications (read: capital gains tax) are much better if you hold your investment for at least 12 months.”