Stop Losing Sleep When The Market Tanks

sleep It was a sea of red as the world markets slid to their lowest levels in over a month, with concerns that the US Fed could soon start withdrawing its stimulus. Straits Times Index (SGX: ^STI) was not spared too, and continued its losing streak since last Thursday.

In the meantime, uncertainty is likely to persist over the short term as people look to the Fed for answers and predict the impact on the markets. While these are external events that you cannot control, have you ever wondered what you can do instead?

Profit from Uncertainty

Warren Buffett once said, “Look at stock market fluctuations as your friend rather you’re your enemy – profit from folly rather than participate in it”. What he meant was that while uncertainty in the markets creates fear and panic selling, we can look upon it as buying opportunities in companies with good long-term economic prospects.

In fact, retail investors can also go one step further by utilizing a simple technique called “dollar cost averaging” to protect themselves from volatile markets. By setting aside a set amount of money into investments at regular intervals, it helps to accumulate more shares when the markets are down and takes away the anxiety of trying to time the market over the long term.

Getting Started with Small Amounts

In the past, investors have to come out with capital worth tens of thousands dollars to get started in a diversified portfolio of blue chips. However, things are going to change with the recent proposition by the Singapore Exchange to reduce the lot size from 1,000 to 100.

In addition, there have been several launches of regular savings plans recently where investors can invest as little as $100 monthly into the plan. We highlight 3 such providers below with seemingly similar plans.

1) Phillip Securities, a member of PhillipCapital, announced the launch of its service for parents to open joint accounts with their children (from new-born to up to 18 years old) through the Share Builders Plan.

2) POSB, subsidiary of DBS Group Holdings (SGX: D05), launched its “POSB Invest-Saver” a fortnight ago. It only allows its customers to invest in the Nikko AM Singapore STI ETF (SGX: G3B) directly.

3) Overseas-Chinese Banking Corp (SGX: O39) also unveiled its similar plan called the Blue Chip Investment Plan (BCIP) in June, allowing investors to invest in any of 19 STI component stocks and/or the Nikko AM STI ETF mentioned above.

As with any investment strategy, there are bound to be pros and cons. One thing investors need to be aware of is that regular transaction costs may take away a huge percentage of profits if the amounts invested are very small. Secondly, it is important to implement the technique of “dollar-cost averaging” on fundamentally sound companies with long term prospects.

Nevertheless, it is now more accessible for retail investors to achieve their long-term savings goals through a disciplined approach of investing a fixed amount monthly. Furthermore, they can take advantage of the power of compound interest by getting started earlier since minimal amounts are required for these plans.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.