MENU

Afraid Of What The Stock Market Will Do Next? Here Are 2 Important Things to Keep In Mind

The headlines today are filled with news on Greek banks shutting its doors along with capital controls being imposed by Greece’s government.

To add to that, the breaking news comes amidst a slowdown in Chinese economic growth, a potential US interest rate hike, and low oil prices that have yet to recover.

Meanwhile, Singapore’s stock market, as represented by the Straits Times Index (SGX: ^STI), has also seemingly responded to the Greek debacle with a 1.04% drop at the time of writing (11:05 am). Today’s decline so far has brought the Straits Times Index down by some 7.4% from its 52-week peak of 3,550 points. Some would point to that as a reflection of investors’ concern in the Singapore stock market.

To the common investor, it would seem like there really is plenty of worry to go around… but instead of merely fretting over what’s going to happen, is there something else a Foolish investor could do?

The value of keeping an emergency fund

“If you buy things you don’t need, you will soon sell things you need”

– Warren Buffett

If your household financials is a ship at sea, you won’t want it to have a leak below the waterline. Such a leak may be enough to sink the whole ship. In fact, if any leaks were to even occur, you would want to be as far above from the water line as possible.

Unexpected things can happen from time to time – like a busted toilet or a hair coloring job gone wrong. In this case, an emergency cash cushion could be critical to keep your financial household afloat.

Investing with long term money

When it comes to investing, it may be best done with cash that you don’t need for the next five years or more. After all, you won’t want your short term cash needs – like the deposit for your wedding banquet or your kid’s school fees – to evaporate in a temporary share market crash.

As much as we like investing here at the Motley Fool, we cannot predict when the next market crash will come or how long it may last. The unfortunate thing is that, while crashes are part and parcel of the investing game, it is likely that no one can foresee when it’d actually happen.

So, keep your short term needs well-funded, and only consider investing money that’s earmarked for the long-term.

A Fool’s take

Our greatest advantage as a Foolish investor may come from our ability to hold stocks for long periods of time. As such, we may want to set ourselves up for success by using cash that is not earmarked for our short term needs or any foreseen emergencies.

For more investing tips and tricks and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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