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SINGAPORE: This year’s stock market has been on a roller coaster ride, with record declines and all-time highs reached.
Last week, US tech stocks saw their worst decline since March. Then on Tuesday, amid another widespread sell-off, Tesla shares tumbled 21 percent, the biggest one-day loss in history, after its delisting from the S&P 500 index.
A day later, the technology sector had its best day on the stock market in more than four months.
Before jumping on the investment train and investing money in what could be a volatile rally, here are five things to consider as advised by the experts.
1. MAKE SURE YOU HAVE SUFFICIENT SAVINGS
He Ruiming, co-founder of personal finance blog The Woke Salaryman, said he typically spends half his salary in the stock market. This includes investing during the sell-off earlier this year and the rally afterward.
But he advises people to save at least six months in terms of expenses or salary before investing in high-risk products.
“We saw a lot more volatility due to COVID-19, and the stock market fell in March,” he said. “If you can’t survive volatility, you shouldn’t invest.”
A man wearing a face mask walks past television screens outside the Nasdaq market site in Times Square in New York, the United States, March 9, 2020 (Photo: Reuters / Shannon Stapleton)
Financial blogger Jeraldine Phneah is more conservative: To maintain power, she recommends setting aside a minimum of 12-month spending as an emergency fund.
“If you don’t have holding power, you could be forced to abandon investments at a loss during a bear market,” he said.
2. TAKE THE LONG VIEW
Based on his interaction with millennials and members of Gen Z, he said that many of them are entering the stock market but lack “the right mindset.”
Some want to make a quick buck and turn S $ 10,000 into S $ 100,000 in two years.
“But a lot of them will panic (when the market turns), especially the newbies. Some update their losses: they put in 20,000 Singaporean dollars and, if it goes down 30 percent, they sell and then the market recovers, “he added.
“You have to overcome the ups and downs; that’s the way to reduce risk. “
Its investment horizon is between 10 and 20 years.
READ: Unable to resist a bargain, more Singaporeans turn to stock market amid COVID-19
READ: The rise of personal finance bloggers, to save financially illiterate millennials
Phneah agreed that investing in the stock market is long-term, requiring work and patience. “It’s not a get-rich-quick scheme,” he said.
This is especially so because markets are likely to remain volatile for a while longer, said David Gerald, president and CEO of the Securities Investors Association (Singapore), or Sias.
Retirees, for example, who have a short investment track and limited time to recover from losses, should not invest in high-risk instruments. “But this was exactly what many retirees did for the Clob, Lehman Minibonds and Hyflux perpetual shares,” he quoted.
David Gerald.
Paul Chew, research director at Phillip Securities Research, advised retail investors to buy stocks based on a company’s normalized earnings and avoid valuing companies based on this year’s earnings.
“They will be negatively affected by the virus at least in the short term,” he told the Money Mind program.
3. DO YOUR INVESTIGATION, DON’T GET FOMO
Gerald also emphasized the need to be sufficiently informed about the companies you are buying from, as well as the state of the investment environment.
“Don’t have the ‘fear of missing something’ (FOMO) mentality, of running to the market to follow the crowd. This is a polite way of saying, invest based on greed, ”he said.
Investing wisely is, after all, the right way to invest. On the other hand, investing without knowledge is gambling.
To instill this, Sias runs free investor education programs, teaching people to use proper investing principles rather than relying on advice and hearsay.
Nor should they leave the decisions solely to the brokers, but rather “become thoroughly familiar with all the risks and characteristics of the investments they are considering with an experienced financial advisor before taking the plunge,” Gerald added.
Phneah is someone who has taken investment courses, for example on investing in dividends and investing in growth.
“I also attended some free webinars to deepen my knowledge and follow other personal finance influencers who have achieved much better results, to learn from them,” he said.
“Being eager to learn and having a beginner’s mindset has helped me correct many mistakes I made investing over time.”
Jeraldine Phneah. (Photo credit: Jeraldine Phneah)
4. LOOK FOR HIGH QUALITY STOCKS AND DIVERSIFY
In the midst of COVID-19 now, Gerald suggested opting for high-quality stocks with strong balance sheets, which should allow these companies to weather the storm.
Investors should also diversify their portfolio, with some representation of stocks, bonds and gold, said Vasu Menon, executive director of investment strategy for Wealth Management at OCBC Bank, who was recently at Money Mind.
“Gold is a useful hedge against (the) risk and uncertainty that lie ahead,” he added.
“The other element of diversification that the investor should also pursue is diversification of time … to spread investments gradually over the next, maybe, six months, 12 months. Keep some dry powder. “
Buying shares in a company in phases helps “take advantage of volatility,” Chew said in a previous episode of Money Mind about how some stocks held out when the market crashed. “Don’t look for that elusive and expensive fund.”
5. DO NOT CHECK THE MONEY YOU CANNOT AFFORD TO LOSE
Kenneth Lou, co-founder and CEO of financial platform Seedly, cautioned that investors should invest the money they are willing to lose if the market falls.
“(Or) if a second wave of infections comes, then this should be a big test of why you are investing,” he said in another episode of Money Mind. “Is it long term or … short term?”
OBSERVE: Investment Outlook for 2020 (6:40)
An information technology consultant, who started trading two years ago, told CNA Insider that he lost S $ 50,000 on Forex trading and gold-traded funds.
The 28-year-old, who declined to be named, said his losses began to pile up last November and culminated in that big loss in May. He said he shortened some meters because “there was supposed to be a sale.”
“But the (price) went up. It was just a bad moment and bad management on my part, “he said. “It was like gambling … and the losses started to pile up.”
As he had liquidity problems, he had used his credit card to finance his operations and he needed Credit Counseling Singapore to help him restructure his debt with the bank. His losses on the stock market also cost him his marriage, he lamented.
“It was the trigger – that I couldn’t manage my finances properly. I wanted to plan for a longer future, earn some money before having a child, ”she said.
“But I became arrogant … Forex (trading) is not something you can learn overnight.”
In the past, you made thousands of dollars in Forex trading and you thought your winning streak would never end. “I have learned not to be arrogant about it. There is no fast money, “he added.
