Investing during Volatile Times May 27, 2020
Market volatility is inevitable as it is natural for markets to respond, move up and down within a short time span. As such, timing the market can be extremely difficult during uncertain times.
One way is to maintain a long-term horizon and ignore the short-term fluctuations by considering the following so as to protect our investments and maximise opportunities during such volatile times.
(1) The Risk Factor
During any period of volatility, it is common for many to ponder the reasons why we should invest.
Some may have a bit more wiggle room when investing for the future. By investing long-term, it’s likely that we’ll ride out the short-term volatility and have access to potential market returns.
When the forecast shows a stormy weather, we may reconsider our plans as such volatile times could act as a reminder for us to relook if our investment plans meet our long-term needs.
Some simple questions we can ask ourselves:
Are we contented with where our money is invested?
Does the risk outweigh the potential reward in the future?
Are the risks balanced to fit our plans?
It is crucial for us to ensure our risk appetite matches where and how our money is invested as it can help to limit the potential shocks or disappointment down the line.
(2) Diversify – Don’t put all your eggs in one basket
After re-evaluating the risk exposure, we might want to consider readjusting where we’ve invested. This could mean stashing our cash away across different investments.
In order to benefit from volatility and staying invested for the long-term, it’s worth considering multi-asset funds that spread investments across sectors, countries and different asset types such as shares, bonds, properties and cash to diversify the risk.
It is the investment equivalent for not placing all your eggs in one basket. For instance, if one part of the market or region experiences some negative volatility, the money invested in other markets or assets helps to cushion the portfolio from the potential impact.
(3) Fight the Flight
During times of market uncertainty, we should not see the market volatility as a reason to make knee jerk reactions.
While it can be difficult to ignore our natural reactions or avoid following the herd. Fight these instincts and it will aid in avoiding the most costly error – selling low and buying high.
(4) Little but often
However, there are other methods of staying invested instead of investing a lump sum. The trick is to invest little and regularly during such volatile periods. We could even buy more shares at lower prices when there is a dip in the market.
By diversifying your risk and taking advantage of “Dollar Cost Averaging (DCA)”, you may buy more shares or funds when the price goes down. Likewise, when the market rises above the original price, fewer shares or funds would be purchased. This enables you to average out the returns.
At PhillipCapital, we offer two types of Regular Savings Plans for you to choose from. You may begin from as low as $100*.
You may also visit the Unit Trust Website to learn more about Unit Trusts and the choices available for you to choose from. Begin your investment journey with us today!
Think BIG. Start Small.
Keep calm, stay safe and invested!
About the author
Regular Savings Plan (RSP) Team
RSP is a regular investment plan that allows an individual to start building up a portfolio of selected SGX-listed stocks and unit trust funds from a minimum of S$100 a month. It takes advantage of the Dollar Cost Averaging concept that does not require you to worry about market timing and volatility when you are planning for retirement, saving for your children or achieving any other financial goals.