The COVID-19 pandemic sparked a surge of volatility across global financial markets in 2020. Even now, the market is reeling from the ongoing global crisis. This year will no doubt leave an indelible mark on the history of mankind.
In the world of investing, the age-old adage goes that market crashes are windows of opportunities to jump onto the investment bandwagon. This might still hold true as the market is still volatile. However, lessons can be learnt from the trends and actions of investors a year on from the beginning of the pandemic.
Here are five things we’ve learnt thus far…
The Best Time to Invest Is Now
With all the noise of market volatility, It can be tempting to try to wait out for a “bearish” market and hope that it will kickstart a bull run. Sound as this investment strategy might seem, that inertia can be a mistake in and of itself. As Warren Buffett says, “the stock market is a device for transferring money from the impatient to the patient.” Quickly getting your money into the market can be half the battle in seeing positive returns, especially if you diversify your portfolio. Organizing your portfolio properly will help you know which are meant to hold for the long-term and which to keep an eye out for market volatility.
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Periodic Review of Asset Allocation
Don’t put all your eggs in one basket. Most successful investors diversify their portfolio to balance the highs and lows of the market. However, simply diversifying your investment portfolio will not help unless you do a periodical review and rebalance your asset allocation. Four out of ten investors in Singapore kept their portfolios unchanged since the pandemic started, while about 22 per cent increased their investments and nearly a quarter rebalanced their allocation.
You need a really strong stomach to invest during Covid-19. As the situation is ever-evolving and all kinds of things might happen to your investments from now until things get better (which is anybody’s guess). So you need to keep your cool if you see your investments bleeding. Your guts of steel will save you from panic-selling and making a huge loss in that event.
Time for Tech to shine
Are there sector-specific lessons to be learned from Covid-19? Definitely. We are seeing technology taking the driver’s seat, and most investors would be wise to bet on it and speed ahead to the future. Even when you might think it’s too late to invest in a tech unicorn, it might not be. If you want to position yourself to benefit from any broad economic recovery without picking individual stocks, look to an index or exchange-traded fund (ETF) that tracks the performance of the whole economy or a particular sector, like tech.
Be an active and prudent investor
There is always an element of risk and uncertainty in investing. However, risk can be reduced if one takes a well-calculated call and avoids getting carried away by greed and fear. The initial sentiment during the early days of the pandemic was that most were paralysed with fear and sold investments incorrectly, and then went into cash and stayed paralysed. However, doing everything steadily, incrementally, every time will help build your confidence, as well as a healthy diversified portfolio.
Emergency funds to the forefront
If nothing else, Covid-19 proved the importance of having an emergency fund.
To minimise the financial impact of the pandemic, nearly six in ten investors in Singapore reduced their discretionary spending, while 47 per cent cut the amount of money saved. You have to save like a pessimist and invest like an optimist. This way, you’re prepared if rough times come in the short term and when you need money later in life.
Before you even begin to think about investing, analyse your cash savings first. Do you have at least six months of expenses in your emergency fund? In such uncertain economic times, we would encourage you to grow your cash cushion to 9 or 12 months’ expenses before you start investing the excess. If your emergency fund isn’t enough to last you 6 to 12 months, focus on building that up first before diving into any investments.
One’s investing style can be different but the basics of investing never change. COVID-19 is an opportunity when we revise the basics and keep the lessons in mind. Don’t change your long-term financial goals just because the market is going through a bear phase. You need to remind yourself about why you invested in those stocks in the first place.
Disclaimer: The views and investment tips expressed on Planner Bee are for the purposes of discussion and your decision should not be based on this. Planner Bee advises users to consider your own circumstances and check with certified experts before taking any investment decisions.