The S&P/ASX 200 Index (INDEXASX: XJO) was hammered 2.5% lower on Thursday as ASX travel and oil shares were hit hard.
The big share market move came as the International Monetary Fund (IMF) warned of a bleak economic outlook and fears of a "second wave" spooked investors.
No one knows if this will be just another day of volatility or if we're headed for another bear market.
If it's going to be the latter, should you be buying ASX shares or cash and gold right now?
Why buying and holding ASX shares is a good strategy
As with all investing, each investment decision is obviously up to the individual and will change with circumstances.
That being said, buying and holding ASX shares has proven to be a good strategy over a number of decades.
If you're a little worried about market losses, just remember that they're only paper losses until you sell. If you're still holding shares, you haven't actually lost anything until you pull the trigger.
In the February–March bear market, we saw some irrational investing by a lot of first-timers. People panicked as ASX shares fell across nearly all sectors before buying back their shares in April or May.
This is just a form of market timing. Yesterday, I wrote a little bit about why you don't have to time the market to get rich. Given the sharp losses across the ASX 200 yesterday led by Flight Centre Travel Group Ltd (ASX: FLT), I think it's worth reiterating.
If you have a long-term investment horizon (i.e. retirement) then what happens today or tomorrow shouldn't matter. Day-to-day ASX share price movements are just noise – the key is to invest in high-quality companies with long-term potential.
So… what about cash and gold?
I think both cash and gold can have a place in a well-rounded investment strategy. Both have different characteristics including safety (both), liquidity (cash) and inflation hedging properties (gold).
However, I don't think changing your investment strategy in the midst of a pandemic is necessarily a wise move.
I won't be loading up on cash and gold even if the share market falls further. If anything, I'll be trying to deploy what cash I do have into cheap ASX shares.
