The past couple of weeks have been the most insane period many investors have ever witnessed. The media has done a great job reporting it, there’s a lot of information out there. A lot of us are concerned and we should be concerned.
However, at times like these, we need to examine the facts. The fact is that COVID-19 is an event. It’s not structural, it’s not fundamental. And because it’s an event, we have to look back in history and we know how events like recessions eventually turn out. It’s not an “L” chart – markets don’t get knocked down and stay stagnant. But rather, it is a “U” or a “V”.
What you need, is to be very vigilant about your risk budget – making sure that you’re taking appropriate level of risk always make sense, especially in times of heightened volatility and the volatility we see now is probably going to continue. I believe we may possibly be down as much as 50% from the highs, similar to the financial crisis of 2007-08.
At this point you may question – why don’t I just get out and then get back in? Well, two reasons:
- First of all, you can be wrong. (I’ve learnt this the hard way at the beginning of my career.)
- Secondly, you would really have a hard time getting back in and the market does whatever it needs to do to prove people wrong.
Stock market volatility is akin to a roller coaster ride, it is dangerous for investors to unstrap themselves suddenly during the ride. Instead, during this period, it is advisable for investors to stay strapped in (invested) and average down the costs of investments in order to benefit when markets go up again.
To this day, I see people who got out in 2009 and never got back in – they missed a complete 10-year bull market. Warren Buffett has said, “The stock market is a device for transferring money from the impatient to the patient.”
And why will the markets go up again?
Historically whenever a recession happens, all of us – billions of human beings worldwide – always put in the collective effort needed to bring up our global economy again.
In fact, governments are now doing all they can to ride us through this storm. The Federal Reserve has cut interest rates down to 0 – 0.25% to support America’s biggest corporations in meeting liquidity needs. The Bank of England has announced a similar plan. The International Monetary Fund has also pledged to mobilize its USD1 trillion lending capacity to help nations counter the outbreak.
So, don’t get caught up in the short-term emotion and the noise. Take care of yourself. Take care your family. And if you have an investment portfolio with me, rest assured that I’m paying attention to your portfolio during this period. If it needs to be re-balanced (when your equity-to-bond ratio shifts 20% or more), I will contact you promptly for a discussion.
I hope everyone’s been having a fantastic year and today I’m going to share with you 2 Market Volatility Hot Tips.
During times of stress and uncertainty, Warren Buffett recommends keeping a level head. He recommends that buy-and-hold is still the best strategy.
I 100% agree.
Buffet also said, “If investors are trying to buy and sell stocks, and worry when they go down a little … and think they should maybe sell them when they go up, they’re not going to have very good results.”
Bottomline, as long as your investments are in alignment with your goals… stay away from your investment portfolio.
Here are 2 other tips to help you during market volatility:
1. Rebalance Your Portfolio
If there is a prolonged drop in the market, things get more complicated. Re-balance your portfolio when market volatility picks up. An unbalanced portfolio may mean you are taking on more risk than you think, or too little risk which may not be in alignment with your goals.
2. No Rash Short Term Decisions
When you have investment goals with time horizons of over 10 years, it is most likely best to do NOTHING. Consider the appropriate actions to take based on your financial plan and goals.
And like what American stock investor Peter Lynch says, “Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.”
So there you have my 2 Market Volatility Tips. Hope they are helpful!
2018 has certainly flew by and wow.. we’re going into March already? Perhaps now is a good time for us to do a stock-take on our money. Here is a couple of tips on how to keep more money in your wallet this year.
1. Don’t Do Mental Accounting When Building Your Budget
Mental accounting means the behavioural thinking of having different piles of money for different reasons. You might have a “jar” that says this is for emergencies or a vacation, and you’re putting money in there every month – at close to zero interest rate.
Then you also have a credit card debt. You mentally classify it as a different thing and pay your debt with income each month.
Financially, this doesn’t make much sense. Money is fungible, it really is all the same. You shouldn’t have a jar with money sitting in it that’s getting no interest or growth while you still have credit card debt.
The solution is to think about all your money as the same. People like to put cash in different buckets for different reasons, but that’s mental accounting and we need to overcome that hurdle.
2. Prepaying your mortgage
Some people add a little extra to their monthly payments to pay the loan off faster. This brings up a common question – is this a good use of the extra cash?
With current mortgage rates at under 4%, you should not be prepaying your mortgage. In fact, mortgages have really low interest rates and are designed for long periods of payments, and you should stick to that payment.
Prepaying it means you are giving up opportunity to use that money elsewhere – whether it’s paying off credit card debt or just investing it, putting it aside for retirement. If you’d be getting 8% returns on your long-term investments, why put your money in something that’s only 4%?
So from a financial planning standpoint, it’s not a good strategy. Nonetheless, people feel comfortable doing that. I know you want to feel like you’re paying off the house faster, but resist if you can.
2017’s global economic outlook is, as we can all see, filled with uncertain events. A few of them are: President Trump abandoning the Trans-Pacific Partnership, the broadly anticipated rate hike by the Fed and Britain’s withdrawal plans from the European Union.
In times like this, it is only human to feel anxiety and fear. But as American businessman and stock investor Peter Lynch says about investing, “Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.”
So here’s a tip for you in 2017 – Remember that time is your friend.
A big part of making money grow is to take advantage of time. People in their 20s or 30s might shy away from investing these days, but they are actually the most suited to own riskier investments like stocks.
That’s because young people have lots of time to recover from market setbacks. A ride up is followed by a ride down, and the ride down inevitably is followed by a climb back to high ground. The longer your time horizon, the less market risk is a factor.
Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.
So if you’re waiting for significant signs of market stability or for the market to hit low ground before you start investing, that could be very costly. The longer you wait to invest, the more growth you miss.
Instead of trying to time the market, let your money spend time in the market. The market goes up in the long run and this the secret sauce that multiplies your wealth.
American voters have chosen to bring big change to the White House. But resist doing the same with your long-term investments, they will be fine.
Many investors worldwide began to sell late Tuesday (November 8th U.S. time) as Donald Trump looked set to win the presidency. Stock markets tanked from Asia to Europe, and a similarly steep drop seemed likely when U.S. markets opened.
On the contrary, stocks proved resilient Wednesday morning (November 9th U.S. time), benefiting those who sat on their hands instead of selling immediately.
Elections can mean big, fast short-term swings for stocks and other investments. And emotions tend to run high in times like this, so it’s understandable if you find it hard to stay calm and leave your portfolio alone.
But we have to remember, history has shown that volatility after surprise events always die down. There is no logic or reason to why markets go down after somebody is elected as president. Most of this is due to speculative or irrational investing.
Long-term investments are meant to be held for many years to your retirement and longer. Big swings in the interim are normal and should be expected. Volatility is the price that investors pay in exchange for the higher returns that stocks have historically provided over bonds and other investments.
So rather than changing around your portfolio, focus on your career, hobbies and family, and avoid being overwhelmed with information. This is just one of the many events that will ride out itself.