Staying Calm In These Turbulent Investing Times

It was in the late afternoon yesterday, when the stock market was about to close, when I got a text message from a good friend. It read: “Are you still investing? The markets look horrible.

That marked the start of an interesting investing conversation.

I replied: “Yes I am. I personally think it’s a good time to accumulate slowly and in a disciplined way.

His response was: “Why are you buying? When will it go out? I think it will be even more turbulent in the latter half of the year.”

I replied with a smiley as I didn’t have any way to answer his questions further. Investing would be so much easier if only I had a crystal ball that I could use whenever the markets dropped. I don’t.

With the big decline in Singapore’s stock market in recent times – the Straits Times Index (SGX: ^STI) has tumbled by nearly a quarter from its 2015 peak reached in April – I am sure there are many worried investors out there. My close pal is just one of them.

And as I thought about the text-exchange I had with my friend, I realised I should have shared two things he could possibly do to help him stay calm amid the volatility in the markets. Here are the two tips:

1) Have a plan

Being disciplined and not panicking when the markets drop can be extremely helpful when it comes to investing. That is where having a plan comes into play. It’s important to note that your plan might be different from others and that’s okay – we’re all different, which means we need plans that work for us.

My colleague Chin Hui Leong has recently written some articles about investing plans here and here. There are many good pieces of advice to follow. The articles also contain useful historical information about the stock market that can come in handy to reassure us that what is currently happening in the market is not something uncommon – the stock market in Singapore has declined and recovered regularly in the past.

2) Invest in an index fund instead of individual stocks

While billionaire investor Warren Buffett has been an ace stock-picker and buyer of quality businesses, his suggestion to individual investors is to actually purchase a low-cost fund tracking a diversified broad market index and investing in it over time. In Buffet’s words:

If you like spending 6-8 hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds. This accomplishes diversification across assets and time, two very important things.

In Singapore, we have exchange-traded funds (ETFs) which closely track the movement of Singapore’s stock market bellwether, the Straits Times Index.

One such ETF is the SPDR STI ETF (SGX: ES3), which has had a total return (inclusive of reinvested dividends) of 6.8% annually since its inception in April 2002. Buying the ETF means that you’re investing in a basket of 30 stocks that make up the Straits Times Index. These 30 companies carry some of the largest market capitalizations on the Singapore Exchange and have decent trading volumes.

Some of you might ask: Since the ETF essentially tracks a basket of stocks, won’t it be volatile as well? Yes. That’s true.

But, the SPDR STI ETF can be less volatile when compared to individual stocks. For example, DBS Group Holdings Ltd (SGX:D05), which is Singapore’s largest bank and one of the top three holdings in the SPDR STI ETF, is currently down by close to 29% from its peak of S$21.50 in July 2015; this compares with the 22% decline in the SPDR STI ETF from its own 2015 peak in April.

Hopefully these two tips will come in handy for investors to help them keep calm and carry on during these turbulent times.

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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 Esjay owns shares in the SPDR STI ETF.