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Stock market gains in the past couple of weeks remind us of the potential for investments to rebound from their recent plunge.

Looking for stocks that can help you participate in the stock market’s eventual comeback? Start your search with exchange-traded funds.

A reader recently asked for ideas on the best stocks to buy right now to take advantage of the stock market plunge caused by the pandemic. There are bargains to be had for sure in stocks right now – beaten down quality stocks with long-term rebound potential.

But the economic difficulties ahead increase the risk of making wrong decisions when picking stocks. That’s a big reason why ETFs make sense – many of them track widely followed benchmark stock indexes and thus are diversified across all sectors. ETFs are also very cheap to own, although you usually have to pay brokerage commissions to buy and sell them.

An argument against index-tracking ETFs is that they expose you to the entirety of a stock market decline, whereas actively managed mutual funds or a portfolio of individual stocks can be manoeuvred in ways that make market declines less extreme. But when markets roar back, an index-tracking ETF will follow in lockstep. Over the long term, through market ups and downs, you should expect index-tracking ETFs to outperform a majority of mutual funds.

Stocks could renew their plunge if the fight against the coronavirus hurts the economy more than currently expected. Buying gradually, a strategy known as dollar-cost averaging, will keep you on the right path through any volatility ahead. Your timeline for making investments like this should be 10 years or more. That far in the future, stocks you buy today will very likely be much higher in price.

Need help researching ETFs? Check out the complete 2020 edition of The Globe and Mail ETF Buyer’s Guide.

If you are a millennial who has been recently burned in the stock market, we’d love to talk to you for Stress Test, a new Globe podcast I’m working on with Globe and Mail personal finance editor Roma Luciw. Please e-mail rluciw@globeandmail.com

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Rob’s personal finance reading list…

Hope for those who had to cancel a vacation or trip

Airlines have been offering vouchers to customers who booked flights they won’t be able to take as a result of the pandemic. Here’s a possible avenue for getting an actual refund, rather than a voucher.

Millennials are entering their peak earning years at a very bad time

This Atlantic article says millennials are near guaranteed to be the first generation in modern U.S. history to end up poorer than their parents.

Damage report: COVID-19 and the economy

Here’s a good source of information if you’re wondering how the pandemic has affected stock markets, interest rates and the economy.

The vintage watch market is thriving

Some people apparently think that classic vintage watches are recession-proof.

Ask Rob

Q: Last year we came into some money and paid off our mortgage. We were brought up to believe that our decision was a good one. But now with the economy changing, we ask: Is it still the best decision, or would cash in the bank be better?

A: Having a paid off house is never a bad thing because it means you no longer face life’s biggest recurring monthly expense. To build up your savings, take the amount you formerly put into your mortgage and add it to savings. The pandemic has shown us the importance of having a significant amount of money in savings. You’re fortunate now in having the wherewithal to build up those savings.

Do you have a question for me? Send it my way. Sorry, I can’t answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

The Ombudsman for Banking Services and Investments (OBSI) created a website to help people file a complaint against a bank or investment firm in the pandemic.

In case you missed these Globe and Mail personal finance-related stories

  • Do the little things right to save tax amid COVID-19
  • Economic uncertainty due to virus makes for unusual mortgage rate landscape
  • What investors should be buying during this ‘safety phase’ of the market recovery (for Globe Unlimited subscribers)

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