Why does the stock market keep going down?
Fret not, this is what you can do.
This has been a tough year for investors.
If you’re invested in the market, it’s not a surprise to see red in your portfolio.
Those sitting on the sidelines seem to be the only winners.
Before you say that the stock market is a scam, it’s worth noting that bear markets only occur about 30% of the time.
It is during these bear markets where millionaires are created. Capitalising on the stock market drawdown requires good investing.
Good investing comes from having the knowledge and resource.
Knowledge to know what exactly to buy that fits your investing personality and risk appetite.
Resource in the form of dry powder (aka cash).
Yields on risk-free assets are too good to ignore
It’s hard to believe some of the yields we’re seeing.
Getting a risk-free rate of 4% has been unheard of since I was born. This is better than many dividend yielding stocks.
It’s also why we’re seeing the stock market in freefall.
Why hold stocks with the potential loss of capital, when you can get 3% to 4% putting your money in risk-free instruments?
Pick your poison
A risk-free asset gives you liquidity whilst earning you some return.
Eventually, this capital needs to be deployed into a wealth-generating asset.
Risk-free assets are meant to preserve your wealth, but not grow it. Assets like stocks and crypto are the real wealth generators.
Look at which life stage you’re in, and choose your poison accordingly.
How fast can I sell out?
Not all risk-free instruments are created equal. The ones with greater liquidity should rank higher than others.
Liquidity measures how fast you’re able to withdraw your capital. The faster it takes, the higher the liquidity.
For example, bank deposits rank higher than term deposits, ceteris paribus.
Here’s my liquidity ranking of the risk-free instruments in Singapoe:
Bank deposits
Singapore savings bonds
Treasury bills
Term deposits
Use this as a guide and tweak it for the risk-free instruments available to you in your country.
Rank them in order of liquidity, from highest to lowest.
Who’s the king?
Cash is not king.
Cash that is easily deployable is king.
The current interest rate environment allows us to earn a good return on our cash without taking on risk.
We ought to take full advantage of this before it disappears when interest rates inevitably fall.