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Coffee Meets Investing

Asked by Anonymous

Updated on 18 Apr 2019

Supposedly I’m in my 20-30, with a recommended 70/30 investment ratio, but faced with a bearish market soon. What should I do?

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Tai Zhi
Tai Zhi,
Level 4. Prodigy
Answered on 07 Jul 2018

You may want to consider starting with either a 60% stocks 40% govt bonds portfolio or a 40% stocks 60% govt bonds portfolio, especially if that helps you to be psychologically more resilient against a market correction/downturn.

Based on the statistics that we are seeing, there are a minority of investors who can't keep cool and over-react to temporary market corrections. For example, some investors lowered their portfolio risk as they panic over heightened trade tensions and the often exaggerated media headlines in Feb 2018.

When trade tensions subsequently eased and 1Q 2018 corporate earnings season went underway with very positive corporate earnings growth, markets rebounded in Apr to Jun 2018 (AutoWealth Balanced Portfolio rose 2.36% net of fees and FX impact in 2Q 2018). Those investors who panic and lowered their portfolio risk essentially ends up selling stocks at the heat of the correction (low prices), and misses the rebound (appreciation) that took place.

Therefore, it is certainly worth the effort to carefully assess your resilience against market corrections (ie. risk appetite) and select a portfolio risk level you feel comfortable with, even in a market correction.

Conversely, we had a high majority of investors who stuck with their regular monthly investment plan. Through the disciplined commitment, these investors eliminated greed & fear. They were thus able to capitalise on excessive market volatility to accumulate more positions at low prices and are now comfortably having higher investment returns than the others.

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