1 Pragmatic Way to Protect Yourself During Market Downturns

Anyone that’s invested in Singapore’s stock market benchmark the Straits Times Index (SGX: ^STI) through, say, the SPDR STI ETF (SGX: ES3) or the Nikko AM STI ETF (SGX: G3B), may feel like they’re on a roller coaster ride at the moment.

At Wednesday’s close, the Straits Times Index had fallen by 17.5% from its recent high that was reached back in April this year.

In times like these, there’s one simple thing we can do to help us keep a cool head.

Thoughtful diversification

Some investing masters may prefer putting most of their eggs in one basket and carefully watch that basket. But for me, I prefer to stay diversified.

I reckon that staying diversified would be a better way for investors who are starting out.

Diversification can come from spreading out your money across different investment ideas. What this means is that your stock portfolio would be better insulated in case one of your stocks were to “blow up” in your face. With your eggs in many baskets, even a severe decline in one company would not hurt your portfolio by too much.

Diversification can also come through spreading your money to invest over time. After all, investing in narrow timeframes may not be the best course of action.

Time-diversification also allows you to learn more about a company and be comfortable with its business and management before you add more capital, thereby reducing risk.

A Fool’s take

Diversification is just one way we can keep our portfolios relatively protected while we invest for our future. It does not mean that your portfolio value will not go down, but it may help you keep your wits about you when a downturn occurs.

If we can keep our wits about us, we may find our bravery to pick up bargains when stocks are falling.

Read more about investing and get more investing tips and tricks, FREE! Sign up here for The Motley Fool Singapore's weekly investing newsletter, Take Stock Singapore.

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 company mentioned.