Fear is common and understandable
I know of a few people who got so terrified by the recent sharp decline in the US stock market that they decided to sell off all their stock investments (apparently) at a loss and keep the capital as cash.
But who can blame them when we saw the value of our investment evaporating away everyday. S&P 500 has declined 11% since the start of this year. Nasdaq was worst.
Even the venerable favourites like Tesla, Apple, Amazon, Meta (Facebook previously), Netflix and Google were not spared. Among them, Apple was the best performer and yet it declined 12%. The rest had averaged 35% drop from its peak. These are the favourites that many of us, including me, like to own. I bet we were buying and chasing them previously at prices far beyond the current level.
However, given the current climate, i.e. a full-blown war that may escalate further, an unstoppable inflation threat, and an impending rise in interest rate globally, we fear that we may be catching a falling knife if we withdraw our hard-earned money now to invest in the stock market.
I chose to stay invested
While I have the same fear, my investing experience tells me that the best thing to do is to stay invested in the market regardless, to open up our war chest to accumulate shares of good companies if there is a sharp correction due to a sudden crisis or when a black swan event happens (but do it in moderation) and to invest in the market regularly on the normal days and not try to time entry and exit.
As an income investor, I aim to generate a stream of consistent and reliable dividends as passive income when I lose my active income or when I retire. Therefore, as long as the companies that I invest in are strong financially and can reward shareholders with reliable dividends years after years, I am willing to play the holding game.
So, I have continued to invest through the last few months.
Yes, it was very painful to watch the value of your stocks kept dropping but I believe that in the longer time horizon, it should pay off.
Notable Changes to My Portfolio
And before I sign off, let me share a few notable change in my portfolio in case you have been following and are interested to learn the latest …
(1) In Nov last year, I shared that I had been selling out smaller Reits (but higher dividend yield) and channeling the funds and any new funds into local Reits that I believe would be providing a stable 5% dividend yield in the years to come. At that point, the total holding of those Reits was about 16% of my SG portfolio, today it is 23%. I hope to grow this to 27% by end of this year.
(2) In Aug last year, I shared that my overseas exposure (i.e. US and HK) was 28%. Today is 36%. This rise has happened despite the prolonged drop in HK and the sharp drop in US lately. A key driver has been the desire to diversify away from SG. I also felt that the drop in HK and US seemed overdone. I hope I am right and only time will tell. I intend to increase it to 40% by end of the year.
(3) In March last year, I shared that my index portfolio (i.e. ETFs, Unit Trusts) is about 28% of my total portfolio. Today it is 30% and I want to grow this further to 33% by end of this year. The longer I invest in the stock markets, the more I believe that I would NOT be able to outperform the market. Maybe I would get lucky once in a while with one or two companies but in general, it is very challenging to beat the return of the market consistently. Furthermore, I find it less stressful when I invest in ETFs and Unit Trusts than in individual companies.
(2) and (3) also mean that my SG portfolio is getting squeezed and getting smaller in size. That’s ok as diversification away from SG is also one of my aims.
I hope you like this latest sharing.
Have a great investment week ahead.
Stay safe and take care.