2020 has been a challenging year to invest in. Earlier this year, stock markets worldwide fell by as much as 30% over just one month. Perhaps, the bigger surprise is that markets have since recovered quickly, and in some instances, are trading at a level that is very close to what it was before the COVID-19 pandemic.
To help investors understand what they should be doing during this volatile period, we talk to the CEOs of some of Singapore’s most prominent robo-advisory companies.
Participating in the interviews were Michele Ferrario (StashAway), Tai Zhi Ow (AutoWealth), You Ning Sun (Endowus), Chuin Ting Weber (MoneyOwl), Dhruv Arora (Syfe) and Asheesh Chandra (Kristal.Ai). These Interviews were done in May 2020.
Timothy Ho (DollarsAndSense): 2020 has been a challenging year for investors. Thanks to COVID-19, we have been through an emotional roller coaster ride, both from a healthcare standpoint, and for our investment portfolio. What should investors, both new and experienced, be doing during this period?
Michele (Stashaway): For investors who adopt a long-term view with their investments, they’ve already prepared their investments to suit their risk appetite and personal financial goals, so it’s easier to maintain a level head to ride out the current uncertainty. If you react to the short-term noise and sell your investments, you’ll struggle to get back into the market when the recovery happens, and you will end up with losses in your portfolios. Instead, we recommend investors to focus on the long-term and take advantage of the dip in the markets by continuing to dollar-cost-average into the markets.
According to the StashAway Insights 2020, systematic investors who continue to stick to their long-term investment plans and invest systematically through a market correction perform better than those who withdraw during a correction. As Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful”.
Tai Zhi (AutoWealth): Invest and do so prudently.
Firstly, set aside your rainy-day funds first, so you avoid cashing out at precisely wrong time (e.g. “COVID-19 sell-off”) when you need funds to tide you over.
After setting aside your rainy-day funds, invest your excess funds and be discipline to “save”/invest a portion of your income regularly in a reasonably low-risk portfolio. There is no point trying to chase the highest possible returns when a market risk event like COVID-19 causes you to crash out of an “excessively high risk” portfolio and crush your future confidence towards investing.
You Ning (Endowus): For those who have not started, today is the day! Carpe Diem (seize the day)! Starting is the hardest part. No matter how nervous the markets make you, open your account, and put in some money. And once you’ve started, it is much easier to keep going.
Investing your CPF OA is a great place to start. Because CPF monies cannot be withdrawn until 55 and there is a consistent stream of CPF contribution, it is the perfect place to have a regular investment plan. Endowus’ CPF portfolios provide exclusive access to passive index funds managed by Vanguard, at the lowest fees.
Chuin Ting (MoneyOwl): MoneyOwl is not a roboadviser, but a comprehensive and bionic financial adviser, we have not just an investment platform, but also a comprehensive planning platform, an insurance platform and a will-writing platform.
We recommend that investors do the following, which is actually in essence the same advice in any investing period.
- Do a comprehensive financial plan so you know how to make the trade-offs between investing and other priorities
- Do not be afraid to start investing because as long as you have time and are invested in the broad market, you will be okay as the stock market always recover and go up over the long term. But if you still prefer not to go in with a lump sum, tranche it out in a disciplined manner and decide in advance the timings of each, and stick to it no matter what happens in the markets or in the news.
- Stick to your plan – remain invested in a broadly diversified portfolio which matches your need, ability and willingness to take risk, without trying to time your ins and outs and without shifting asset allocation; and continue investing your monthly surplus regularly.
- Remain invested in broadly diversified portfolios without trying to guess which stocks or sectors would do better.
- Ensure that your fund manager (if you are using one) is also doing the same as above – being broadly diversified and not tactically shifting asset allocations.
Dhruv (Syfe): Every day, we see more facts about the current pandemic and its consequences emerge, and the markets seem to have detached themselves from the economy due to the heavy interventions of central banks around the world.
No one knows if the recent market rally (Editor’s note: interview as done in May 2020) is a sustainable recovery, and our risk indicators still indicate the risk of the markets coming off again likely, but we believe that if have the resources and discipline, staying invested pay off. We would not go overboard and are not saying this is a great buying opportunity because we expect the next few quarters to be volatile. But if you invest with a long term perspective (which is what we recommended) and bear the market swings, the time you have in the market (rather than timing the market) can be your best weapon!
Asheesh (Kristal.Ai): Keep some dry powder. Invest in sectors that have proven longevity like pharma and tech. Don’t get swayed by emotions. And most importantly, tweak the rule book a little. A 70:30 portfolio will not make sense right now, but more customized products will.
It’s Time In The Market, Rather Than To Time The Market
When speaking to the CEOs of these robo advisory platforms, one recurring theme that they all stressed is for investors to focus on spending more time in the financial markets, rather than to be timing the market. This makes sense, given the current volatile period, where predicting the stock market will be difficult.
The pandemic is a timely reminder for many investors that predicting short-term movement in the financial markets can be difficult, and that many investors are likely to do better by focusing on having a long-term investment strategy instead.
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