How to start investing in a bear market
We’ve seen the widespread socioeconomic effects of the Covid-19 pandemic. Across the globe, governments have imposed countrywide-movement control restrictions, affected citizens are being quarantined and some businesses are forced to close their doors.
The stock market wasn’t spared either. In March alone, the benchmark S&P index declined 14%. As at 31st March 2020, the index value was down about 21%. Singapore’s benchmark STI index also declined nearly 25% from the start of the year. This means that we are officially facing a bear market which is characterised by falling stock prices of 20% or more. In fact, the first three months of 2020 was the worst quarter for equities since 2008.
Bear market opportunities
For those who are currently vested in the markets, some may panic with the sea of red seen in the stock markets. But for those who are new to investing or are ready to open their war chest, it could present a great buying opportunity.
Before you jump right in, ensure that the money you are putting into investment is idle cash, especially when there is a looming recession. It is prudent to have at least 3 to 6 months of emergency cash, or more if you have dependants, to tide you over during a crisis, and at least 12 months for those who are self-employed.
What to look out for new investors
If you are new to investing, there are three things that you should consider:
Do you prefer to invest a lump sum, or a small, consistent amount each month? For the latter, you can start from as little as $100 per month. For lump sum investments, it depends on the type of assets you are investing in and they will typically require somewhere between $1,000 to $5,000.
- Type of assets to invest in
The type of investment asset chosen by you should reflect your risk appetite. These include bonds (usually safer than equities), unit trusts, stocks and leveraged products such as futures.
Whatever you choose, you should only invest the amount that you can afford to do without in the short term as investing comes with risks and needs time to grow. Do your due diligence and understand the investment products before going ahead and adopt a diversified approach.
- Time horizon
Are you planning to buy and hold your investments over the next 10 years, or are you simply taking advantage of the low buying price to sell off in the next few months? Depending on your time horizon, it can affect the potential returns of your investments, as well as the type of investments you are considering.
For example, buying in a down market (such as the current climate) may require you to have a longer holding power since no one knows how much lower the market will go, or when it will start to recover.
3 ways to jumpstart your investment journey
1) Regular Savings Plan
A Regular Savings Plan (RSP) lets you invest a fixed sum from S$100 monthly consistently. For instance, you can choose to invest in equities, Exchange Traded Funds (ETFs) or Unit Trusts (UTs), helping you accumulate units of funds steadily and progressively.
This style of investing is also called Dollar-cost Averaging - a strategy where you invest a fixed sum regularly into the same choice of investment over a period. The investment takes place regardless of market conditions, so you accumulate more units when prices are low and less units when prices are high. Over time, the average cost of your investment could potentially be lower versus a lump sum investment.
The advantage of using an RSP is that there is no need to time the market, and the low entry investment sum makes investing accessible to newbie investors.
Find out more about DBS Invest Saver – which offers access to ETFs and UTs.
2) Stocks trading
Buying stocks is a popular way to get into the market especially when stable and reputable companies see their stocks fall below fair value. In a bear market, accumulating stocks of these companies could be a good strategy for long-term investments.
But for a new investor, finding the right stock to buy could be daunting. For a start, you can look at defensive stocks – typically large-cap companies who have strong balance sheets that hold up well during recessions. Common examples include companies in the consumer staples industry, utilities or healthcare.
You can also read here on how to know when the stock price is right.
If stock-picking is not for you, you can always choose to buy into index funds that are made up of a basket of shares.
In recent years, we have seen the emergence of robo-advisors as a new channel of investing. To put it simply, they are digital platforms that provide automated, algorithm-driven financial planning services.
The robo-advisor will usually collect some information about you in order to find out more about your financial situation and risk appetite. It will use this data to provide and recommend a portfolio most suited to your profile.
There are many advantages to using a robo-advisor:
- It provides a simple way to invest
- There’s no need for you to watch the market
- Your portfolio is professionally managed
- Low fees
Using a robo-advisor, such as the DBS digiPortfolio, can be relevant for both new and current investors. For the former, it takes the guesswork out of stock-picking to have your funds professionally managed. For those who are already in the market, it can be a way to supplement your other investments as part of a long-term strategy.
Whether you are a new investor or looking out for investment opportunities in the current bear market, be sure to only invest your idle funds, and start taking the next steps to growing your wealth!
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Need help selecting an investment? Try ‘Make Your Money Work Harder’ on DBS NAV Planner to receive specific investment picks based on your objectives, risk profile and preferences.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
Disclaimer for Investment and Life Insurance Products