I have been scrolling through YouTube and coming across multiple videos about how you can become rich through this recession from this to this to that and even this. It really is the basics that they talk about but it is so important to set yourself on track and create habits during this down market that can help you in the long run.
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If you are not prepared to invest yet, it is a good time to be building up your base, making sure you have your financial situation all settled eg, sufficient savings, insurance making sure you are covered and building up multiple sources of income if possible. I too, will repeat some of the basic and important things to take opportunity in this crash or to build upon.
Making sure you have an emergency funds or best, extra cash for buying the dips
It really sounds like a broken recorder and I am sure most people in Singapore have this prepared but of course, in tough times eg.layoffs, the emergency fund you have prepared lets you be at ease and be able to make rational decisions. It also gives you negotiation power on your job search as you can have time to find a better opportunity or be able to propose packages as you are not in desperate need for a new job.
Besides serving it’s purpose for covering the expenses while you are searching for a new job, the extra cash that you have build up outside of your emergency funds give you chances to accumulate more when shares are at a relatively cheaper price than usual. Although you might have already accumulated your emergency fund, you can choose to also put a portion of them in areas that have easy liquidity eg Singapore Savings Bonds or high interest saving accounts to make sure they are generating some yield. It doesn’t have to be some risky yield as your emergency funds should be your base and not be fluctuating in value. Even just leaving them in a bank account is all right as it should be easy to use whenever you require it.
Building up a war chest at the side can serve you well during the down times as it can provide you with more to invest when the market is down. After building up your emergency fund, you can still continue to put money aside for your war chest.
Consistently entering the market and not timing it
No one and I repeat NO ONE can always absolutely time the bottom and top. So no one can absolutely buy low and sell high every single time hence it is good to be disciplined and ensure that you are periodically entering whether it is high or low. There is also enhanced DCA where you invest more when the market is down and less when the market is high. Of course, you would then have to make sure you have sufficient cash-flow that will allow you to invest periodically. There are definitely studies showing that lump sum would perform better depending on when you invest compared to DCA-ing.
However, in the earlier stages of getting started in investing, most would not have a lump sum and so making that habit, setting aside the money makes it beneficial in the long run as compounding can start early. Timing the market is tiring and it might make you hesitant to invest as you might hold onto your money as you look for the lower lows to enter. So automating and periodically entering into index funds/ETFs are good.
Be able to have cash-flow or be employed during this volatile time
Cash flow is important to keep the habit of investing and ensuring that you are able to in the long run. Whether it is through a primary source of income or many different sources of income, cash flow is king in tough times as you do not have to liquidate stocks to have cash and instead can rely on the cash-flow.
Staying invested, keep to your budget and plans unless things have changed
Time in the market beats timing the market. This has been said many times as we hear of how the stock market when looked over a short frame of time is very volatile but once you zoom it out, the longer you hold, it generally provides you with positive yield. Looking at the situation now, there are a number of individuals in cash and I definitely won’t doubt them as the market and economy looks to be going down in 2023 as we see layoffs, earning guidance and just many news saying of tough times in 2023. However, the truth is that we're not as calm and rational as we claim to be, if we do see a bottom, will we be brave enough to click the buy button?
Many investors fail to remain invested in stocks when a rebound occurs. In fact, they tend to jump back in only when most of the gains have already been achieved. This type of buy high, sell low behaviour tends to cripple investor returns. Keeping your stocks in your portfolio longer is more cost-effective than regular buying and selling because the longer you hold your investments, the fewer fees you have to pay. - Investopedia
Besides staying invested, you need to also budget and ensure you are following the plan you set eg. fixed amount of funds into index ETFs per month and putting aside an amount for daily necessities.
Keep yourself emotionally stable
Ensuring you are all right with the amount you have invested to be fluctuating is important and you have to make sure it is money that you do not need in the short term. Reading or watching too much news can also prove to be detrimental especially if you are easily affected as news wants to attract the views so some times the headlines might be exaggerated. Remember that you are investing for the long term and do not make any rash decisions.
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