Staying invested in the market downturn — with the right plan

Markets have been very volatile and it's a tough time to be an investor right now. 

It is important to maintain the right perspective when markets are turbulent. When markets spike up and overshoot, investors shouldn’t chase markets up. Likewise, we should not let the emotional pain cloud our judgement when markets are down and we are losing money. A downturn in markets is not uncommon, and cycles are a natural part of any market or economy. In these difficult times, please take heart: building wealth through investing (and not speculating) is a matter of time and discipline. 

Data shows that investors who stay invested at a risk level suitable for their goals — while remaining diversified, strategic and passive in asset allocation, and at a low cost — stand a much better chance of success than those who try to speculate and time their exposure to markets, geographies, and sectors.

We only have to look back at the most recent Covid-induced market collapse in March 2020, where panicked trading and emotional reactions led to wrong decisions. Investors who maintained their goals and risk levels, and continued their investment journey through a time-tested and evidence-based investment strategy, experienced much better outcomes.

History also shows that the best-performing days often follow the worst-performing days. With no consistent way for an investor to time these swings, the optimal way to capture strong gains and be compensated for the risk you take in global markets is to stick to your sound investment plan. 

Many of our portfolios hold thousands of individual securities, mitigating the idiosyncratic risks associated with investing in individual stocks or bonds. They are generally performing better than the benchmark index and portfolios offered by competitors. While none of us can predict what the markets will do in the short term, we are confident in the long-term resilience of our investment philosophy. We believe in staying invested to let time do the work for you.  

Here are some articles that explain how we should respond to market downturns, and why time in the market is better than timing the market.

Lessons from past bear markets

"At the extreme moments of fear and greed, the power of the daily price momentum and the mood and passions of ‘the crowd’ are tremendously important psychological influences on you. It takes a strong, self confident, emotionally mature person to stand firm against disdain, mockery, and repudiation when the market itself seems to be absolutely confirming that you are both mad and wrong. Also, be obsessive in making sure your facts are right and that you haven't missed or misunderstood something." 

Those are the words of Barton Biggs, the famed strategist who started Morgan Stanley's asset management business in the US back in 1975. Take a trip through history to learn how the past underlines the basics: as long-term investors, where will we be one year, three years, and five years from now?

How we should invest amid high inflation

Things have become more expensive. We call it inflation. But that also includes the cost of money — reflecting in interest rates — which has followed inflation higher. 

Many are predicting a new era of higher-for-longer inflation, with the Covid-induced cost push inflation exacerbated by the Russia-Ukraine war — the crisis compounded the price shock by pushing up oil, food, and metal prices. China’s lockdown policy has added strain to supply-chain disruptions. We’re in a perfect storm. 

While inflation hurts our pockets, that’s not the only impact to our finances that we should consider. Inflation has a clear impact on our real investment returns — an investment that returns 2% before inflation in an environment of 3% inflation would mean a negative return (-1%) when adjusted for inflation. So far this year, we have also seen an unprecedented fall in both equities and bond prices, damaging our savings and wealth portfolios. Read on to learn more about what investors should do to adjust to rising inflation. 

Rational investment strategies to win in a market correction

Meet “The Worst Investor In the World”, who has the worst possible timing — investing right before each crash in each decade starting from 1970. Despite his horrendous market timing, the investor would have still earned an annualised return of 8%, with a total return of more than 1,500%. The key here is really time in the markets, rather than focusing on timing. By trying to time when markets are "bottomed out", we miss out on the best times to invest during those downturns.

So you may have swirling questions that sound like these: “Is now the time to buy?”; “when should I buy the dip?”; “how much further down is the market going to go?” If you have cash on the sidelines, here’s an option: try to buy throughout the dip, rather than trying to catch the bottom of the dip.

Read on to find out why you do not have to be a superhero to do well.

Grow your wealth with a team of experts who truly understand your needs and align with your interests. Open your Endowus account and start your investment journey in less than 10 minutes.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 

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