In deep corrections like this, investors are more worried about protecting their capital. My portfolio cannot take a 50% draw down. Should I get out of the market?
Things like this run through your head.
Managing your head
How long does an average bear last? Can be from 6 short months to 2 years based on recent historical.
If you are young, you would want to see more draw downs.
Don’t you want to buy SingPost at 80 cents? Starhub at $2.00? KepCorp at $4.00?
It’s a dilemma when things are dear and you are afraid if you buy it, there is no margin of safety there.
So why don’t you want to pull your money out totally? If you have a knack for market timing then by all means do it. But if these are just noises and the market goes back up, you probably forced to buy back at a higher price.
Just like my previous post, know the nature of your investments, whether they are cyclical and the valuation you got them at, if you feel sad seeing profit go to waste, establish a few profit taking targets such as break in trends, a minimum %.
The WORST thing that can happen in such scenario is LOSE YOUR PSYCHOLOGICAL CAPITAL.
Now is a good time to see how risk adverse you are.
Capital Injections are important
What is important, is sound budgeting and establishing “Pay yourself first”.
Visualize where your portfolio will be in 10 years time. How much you will add to it. What kind of average portfolio yield you are looking for.
I have a useful Dividend Portfolio Projection spreadsheet that you can make a copy of to help you visualize. [Spreadsheet here]
My take is that many young folks have probably started building up their portfolio.
The size of it can range from 20k to 40k.
And if your portfolio is small, 2 years of 12k per annum contribution will add 24k to your portfolio at a LOW price.