How to Face Singapore Stock Market Volatility
Singapore stocks appear to be the most volatile according to Tradingview. Some stocks fluctuate to over 100% during the day. This is high fluctuation when compared to developed markets where fluctuation seldom exceeds 30%. Many fear that global trade tensions, geopolitical uncertainties may be some of the causes of the volatility.
While the Singapore stock market looks more unstable and unpredictable, many investors retain their optimism. A majority are unfazed by the volatility and only about an eighth view it negatively. Investors see buying opportunities and expect to invest more with increased fluctuations. It sounds risk-seeking, right? What is giving them confidence is their positivity about the prospects of the Singapore market.
Volatility significantly determines the profit or the loss you make in stock trading. Many stock traders aim to capitalize on this volatility. They predict which way the stock prices will move. If your bet works your way, you earn high profits. If it works against you, your bank account runs empty. It then becomes essential to know how to handle stock market volatility.
Are you one of the Singapore Investors who are bullish about the Singapore stock trade? Congratulations! Risk-taking is the route for any investor who wants to succeed. To ensure you take a calculated risk, here are the tips to help you handle the stock market volatility.
1. Seek Bargains in the Market
It is during market volatility that you can get the opportunity to buy high-quality stocks at a discount. Look for high-quality equity that are on offer at a low price. Such stocks prices could triple in a few years to come. It is a scenario that happened in China’s economy when their market was volatile. Amazon stocks were offered at $222 less than its price. In the next three years, the stocks quadrupled.
It is common to panic when the market is unpredictable, but holding your fears can help make useful decisions. If you see volatility as an opportunity to buy, you get hold of quality stocks at an affordable price. After some years you can earn a fortune.
2. Ignore Daily Market Swings
If you watch the daily fluctuations, you may lose your focus. Therefore try to avoid the daily market headlines. The daily swings in the stock market may seem too random to predict. The best thing is to think long-term. If your investment horizon is long-term, for instance, five years, the current volatility may not outlive two years. The price fluctuation is like short-term noise in the market.
Nevertheless, you need to position your portfolio to support your long-term goal. Review the constituents and the size of your portfolio. Ensure your portfolio has strong stocks and you don’t hold a size that subjects you to unnecessary risks. The larger the investment, the higher the risk. Prefer ‘calculated risk’ rather than ‘any risk’.
3. Use Diversification to Hedge Volatility Risks
There are diverse strategies you can use to hedge against spikes in volatility. There are mutual funds, ETFs, Index funds, Fixed-income funds. Your investment expert can advice you which is the best mix. Diversified investing is disciplined investing which should happen before diversification becomes a necessity. The reason being, by the time you react to the market 80% of the damage is already done.
Diversification can help you to offset some of the losses suffered. With it, you will find investing rewarding even at the worst times. A mix of a well-diversified portfolio and an extended investment horizon can weather most volatility storms.
4. Consider Selling Some Stocks
The thought of selling stocks should come to you only when you are holding too much stock in the market. Too much money in the stock market can trigger panic and sleeplessness during volatility. Hold no more money in the market than you are willing to lose. Sell some stocks and invest in less volatile bonds or certificates of deposits. It is an approach that can stabilize you during market volatility.
Stock market volatility can help you to review your risk management. Predictions sometimes can drive you to buy a large number of stocks. The purchase comes on the premise that they will perform well soon. Striking of volatility then make you have a more rational perspective. You resolve to sell some stocks while trying to have a healthy balance.
5. Re-examine Your Goals
Instead of reacting to volatility panic, let it be an opportunity to review your investing objectives. Determine if your level of risk is still sound in the context of your overall financial plan.
Ask yourself if your investment timeline is still on track. If you feel contented with your stock portfolio, then, take no action. Whereas you think your position is not okay, seek out the most appropriate route.
Before taking resultant action, examine what changes the short-term factor will bring to the long-term goal. This will help you to align your short-term decisions with the long-term goals.
6. Adopt Dollar Cost Averaging (DCA)
This approach is a fundamental investing principle. It means investing the same amount at regular intervals. It helps you to buy more shares when the price is low and less when the price goes high. The resultant average purchase price is lower the average market price over the same period. This approach brings discipline to investing.
DCA can enable you to make a regular and timely investment in several market environments. A market decline presents an opportunity to buy high-quality stocks that you would otherwise not have afforded. DCA helps to cut down investment risks. It will work for you if you believe there is a high chance the markets will be lower over your time horizon. Another good thing about it is that you can attach a metric to limit orders to buy.
Market pullbacks are a regular part of the stock market cycle. The most crucial thing is to keep matters in perspective. Avoid rash decisions but rather review your strategies. Staying focused on your long-term goals could help you persevere the hard market environments. Focus on the forest and not on individual trees. And, when things are entirely unclear to you, seek advice from your financial advisor.