Stock markets took a downward hit since the last few weeks and is most likely to set for another volatile week ahead, as the implications of an escalating coronavirus outbreak and slumping oil prices spooked investors.
Photos: Wix | Source: CNBC News
The downturn marked a dark time for those with a toe in the market and sparked anxiety, especially among new investors, who had been riding high on continued market rallies over recent years.
However, it’s important to remember that this is not the first — and won’t be the last — market dip, and it can be a good opportunity to get your investment strategy in check.
Here's a closer look of a graph and a statement from a CNBC article about how the market responds in a pandemic crisis:
“While some epidemics did spark a market correction — which is what we are witnessing now — their impacts tended to be relatively short lived, with drawdowns lasting less than two months. The HIV/AIDS pandemic in 1981 was the exception with 5.1 months of market impact,” Lim told CNBC Make It.
However, he added that could provide investors with an “opportunity to add exposure rather than panic and sell.”
What to do with your money
When looking for money-making opportunities in uncertain times, Brice said it’s vital to remember the core investing strategies: go gradual and diversify.
“Market volatility is something that investors should be prepared for, despite the recent volatility being quite extreme,” he said. “Start small and ensure (you) are diversified across major asset classes (equities, bonds, cash and gold) and major regions/sectors.”
Lorna Tan, head of financial planning literacy at Singapore’s multinational bank DBS, agreed that periods of volatility can be a good time to enter the stock market and gauge your risk tolerance.
However, she added that it’s not for the fainthearted and recommended the following four key pillars.
1. Invest for the long-term — Make sure you have three-to-six months’ salary saved in cash for a rainy day, because any money you invest in the market should be locked away for long-term goals.
2. Contribute gradually — Invest a fixed sum regularly into the same investment product over a long-term period. This allows you to buy more units when the cost is low, and less when the price is high. It’s a strategy known as dollar-cost averaging.
3. Take advantage of compound interest — Time in the market is more important than timing the market. Earn interest on the interest you receive by sticking to a disciplined investing plan.
4. Diversify, diversify, diversify — Consider low-cost, passively-managed index funds or exchange traded funds (ETFs), which give you exposure to a broad range of stocks.
Lim noted the current market dip can provide an especially good opportunity for young investors who have a long timeline to play with.
According to StashAway’s Insights 2020 report, people who invested consistently during corrections and when markets broke performed even better than those who withdrew during corrections and did nothing during break-even periods.
Meanwhile, those who already have a stake in the market should hold tight, according to Dhruv Arora, CEO of digital wealth manager Syfe.
“Times like these stress test not just the market, but individuals too ... Try not to be swayed by your emotions. Unless you have an immediate need for cash, do not sell your assets out of panic,” he advised.
While financial experts expect the downturn to continue in the near term, most agreed that markets will recover over the next few months.