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Understanding when to do something and when to do nothing with your investments

2021 dot 8 min read
One common personal finance phrase you hear is to "make your money work for you". By setting aside a portion of the income you have today to invest for your future, you will be able to grow your nest egg.
 
The global spread of COVID-19 has led to stock markets crashing and many businesses coming to a standstill. Ending the longest bull run in the history of the stock market, many major stock markets have nosedived close to 20% or even more over a few weeks.

So, should you sell or buy now?

During market downturns, there will always be those quoting one of the most famous Warren Buffett words, "be fearful when others are greedy, and be greedy when others are fearful". On the other hand, there will also be those who predict greater dips on the horizon and would advise investors to hold back on their investments.

When to do nothing with your investments?

While it can be scary to see your portfolio dip double digits, one good reason to do nothing during a market crash is if you do not have greater insights than the investing professionals as to what will happen in the coming days and months.
 
As long as your existing investment strategy remains intact, you can continue staying invested. If your strategy includes dollar-cost averaging into the markets, you can also continue to invest, as doing so would allow you to invest during a period when asset prices are cheaper.
 
This is especially relevant if you are buying into investments that are tracking the major market indexes, such as those in the US, UK, Hong Kong, China and Singapore. These indexes typically include companies with diverse revenue sources from different industries and regions.
 
If a recession affects just one region, your portfolio would be diversified enough to stay strong. If a recession affects the entire world, then you should expect that your portfolio will also dip, though a diversified portfolio with the right asset allocation mix should cushion the fall to a certain extent.
 
As ordinary investors, you don't have the expertise or time to monitor the markets and react faster than the professionals. This is why the focus should be placed on creating an investment portfolio that is diversified and with the appropriate allocation mix into stocks and bonds, that can weather market downturns.

When to do something with your investments?

Inaction shouldn't be for the sake of inaction either, and there are times when you should do something with your portfolio. However, this should not be because of the fear or emotional stresses you face when your portfolio declines in a market downturn.
 
The reason to make adjustments can include the rapidly changing fundamentals that a downturn brings along with it. For example, during this particular downturn, if you have been investing in the aviation sector or hospitality sectors, you may realise that these industries are going to bear the brunt of safe distancing measures implemented worldwide.
 
You should also only adjust your portfolio if you feel the fundamentals of the companies have been affected, which impacts their longer-term sustainability as a business.
 
Another occasion you can consider doing something with your investments is when you are entering a different life stage and want to take less risk with your investments.
 
For those looking at retirement on the horizon, they cannot afford a downturn wiping out 20% to 25% of their retirement nest egg, as they need to start drawing down the funds to use when they stop working soon.
 
For those just starting in their careers, shaving 25% off their investment value will be painful as well. However, they have a greater chance to recover by continuing to remain invested and ploughing more funds into the markets over the next three or four decades.
 
This is mainly because they have time on their side to ride out the current and any future downturns, as well as enjoy the power of compound interest over a longer time horizon.

What is the best investment strategy?

There isn't a single best investment strategy. For those who are newer to the investment game, tapping on industry experts can level the playing field for you.
 
Markets can be volatile, so it's always prudent to determine the level of risks you are comfortable with. Typically, the higher the investment risks you take, the higher the returns you can achieve. At the same time, you cannot ignore the fact that there is also a higher chance of things not going according to your plan, especially in the short term.
AIA Platinum Wealth Elite 2.0 connects you to powerhouses in the wealth management industry. 
 
The policy also allows you to tailor the level of investment risk to suit your risk profile with three different portfolios – AIA Elite Conservative, AIA Elite Balanced and AIA Elite Adventurous – each thoroughly researched and well-diversified across strategic mix of equities and bonds.
 
During market downturns, bonds are an asset class that tend to help investment portfolios continue to perform, through a combination of visible cash flows and an increase in prices due to falling interest rates. At the same time, investors should not think that all bonds have the potential to shield their investment portfolio against downturns. High quality bonds have a greater chance of doing this than lower quality bonds.
 
Utilising a mix of equities to fixed income allocations, AIA Platinum Wealth Elite 2.0 balances the varying risk profiles of their investors.
AIA Platinum Wealth Elite 2.0 also helps you to dollar cost average into the markets with regular premiums for between 5 and 10 years or if it is your preference, with one single premium. You can also choose to make withdrawals from the policy to help you with liquidity during economic downturns.
 
While enjoying the benefits of making your money work for you in the markets, this plan also provides you a High Life Protection (up to age 122 years) to take care of your family's well-being and legacy transition, should the unforeseen happen at any point.

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