Why (and how) you should keep investing in volatile markets as a resident in Singapore
Financial markets in Singapore and around the world have suffered over the last year. All the major financial indicators suggest continuing volatility: inflation, diminishing values of currencies, Chinese slow down, and low economic growth all point to a bearish market in 2023. Investors thinking about whether to keep investing in such volatile times are not wrong to take stock, but it’s also important to understand that such times also offer huge opportunities for potential growth.
Plenty of financial data supports the move to stay invested in volatile times and keep focussed on your long-term goals. If you are someone who has clearly defined financial goals, there are several good reasons why you should refrain from selling and continue investing in 2023 as a resident of Singapore.
1. The market always makes a comeback:
In the last three decades, the financial market has suffered from all kinds of setbacks, including recessions that wrecked economies, financial crises that bankrupted thousands of businesses, a pandemic that stopped the globe, and natural disasters which no one could have foreseen. After each of these calamities, historically, the market has always made a comeback, and often fast, and to an all-time high.
2. Investors that held on to their investment in market falls have historically been winners:
Selling in times of crisis means you are realizing the loss. Investors who sell at this point miss out on the profits of the rebound that the market has historically taken. If you see that the graph of the market is going down, just zoom out and you will see that over the last century the market has consistently been bullish soon after a drop. Timing the market seldom works, and rather than panic remember that you’re in it for the long haul.
If you had invested $10,000 in the S&P 500 index in 1992 and held on with dividends reinvested, you'd now have more than $170,000. This period included many volatile times like the Singapore market is facing, and one of the worst financial crises of all time, but investors who stayed committed realized incredible returns.
In fact, volatile markets present the great opportunity that investors seek, to buy when prices are low then watch them rise.
3. Tips for investing in a volatile market
So if you understand the benefit of holding your nerve and staying committed, here are some tips on to how and where to invest your money properly as a Resident in Singapore in a volatile market to get the best results:
Invest in intervals rather than all at once
Making a small investment at regular intervals irrespective of the market has been proven to get great results however volatile the markets. The approach has multiple benefits. One, it helps you decrease the cost of your investment by averaging out the cost of dollars being invested. Two, it reduces the risk of your entire investment getting hit by some loss at a single point in time. Three, short-term downtrends are canceled out by short-term uptrends over a long period. By investing regularly, you are getting most of the benefit and less of the risk.
Diversify your investment
Another proven way to balance out the risks of volatile markets is to diversify your investments by investing across different asset classes, sectors, and regions. Diversification lowers risk and helps you avoid concentrated losses.
Ignore short-term shocks
One of the most important if often difficult parts of being a long-term investor is holding your nerve. No matter what direction the market is taking in the short term, keep your focus on your long-term goals and avoid letting your strategy get distracted by your emotions.
4. Where to invest in volatile markets as a resident in Singapore?
The CRB index – a well-used barometer for commodity performance – has recently hit its lowest since March 2009. Oil is cheaper than it should be, the demand for copper has taken a nosedive and the price of gold has been plummeting.
One of the main reasons why there has been volatility in the commodity markets is the grim outlook for China. China is one of the largest economies in the world, and has been one of the fastest-growing as well over the last 20 or 30 years. Its huge size and rate of growth has meant huge consumption of commodities, however due to its struggles with Covid-19, its economy has slowed, resulting in lower consumption of commodities. This anticipation of further falling demand for commodities has brought a bearish effect on the commodities market.
It is a fact that what is tangible is always going to be usable, meaning that sooner or later, this demand is going to bounce back and so will the prices, making now a good time to invest.
Falling currency value
Currencies have been falling in value against the dollar around the world. Currencies that once looked strong and healthy have all devalued, including the Australian dollar, Singapore dollar, British pound, and Chinese Yuan.
The dollar is the only currency that continues to perform strongly, and it is trading at its highest level since the 2008 financial crisis. However, it can’t continue to increase in value forever, so now could be a good time to invest in other currencies.
As an increase in interest rates is expected, as a resident of Singapore, you might explore the benefits and relative safety of money markets and short duration bond funds. These investments offer good returns and are generally categorized as low risk.
While investing in equities can be considered risky in volatile times, it can also lead to the most gains when markets rebound, and there are ways to mitigate the risk. For example, instead of attempting to pick a single winning stock, invest into a broad basket of stocks and/or bonds that goes beyond your average mutual fund or ETF. While one cannot remove market risk from a portfolio, it is possible to remove the risk specific to any one company or industry.
As the saying goes, millionaires are made in recessions. This is because the lows almost always precede steep subsequent rises in the markets. Be cautious, disciplined, steady and wise, and continue to invest (and stay invested), you’ll stand to benefit the most out of these volatile times.
If you require assistance with your investments, get in touch.