The Malaysian stock market experienced a 11-year high in October due to fears of coronavirus. It then surged higher the following month. The US stock market experienced a record-breaking drop, then rebounded. This was just the first six months.

It can be difficult for investors to see your portfolio go through these extreme highs or lows. This can make it difficult to plan your investments. You’ve been told to start investing as soon as possible for retirement. But how can you invest in uncertain market conditions.

It is not the right way to invest

Let’s first look at why you shouldn’t spend. Johari has a small portfolio on the local stock exchange.

He was concerned about his portfolio’s losses in 2019, and he kept an eye on it. He panicked when the stock market plunged sharply in February and March 2019 due to COVID-19 concerns. To reduce his losses, he sold his portfolio in fear that the stock market would continue to fall.

The stock market started to rise again shortly after. Johari was initially unsure about buying back in as we were still experiencing the coronavirus pandemic. He didn’t want the stock market to fall, so he bought back the stocks he had sold.

Johari decides whether the stock market will rise or fall in the above example. This is risky, and could lead to investment loss.

Timing the market is a good idea.

Most investors don’t believe in investing based on predictions of stock market movements, also known as timing the markets. Here are the reasons:

It is difficult to predict the stock market. It’s risky to invest based on what you believe the stock market will do. Many factors are involved including company valuations and economic growth. Interest rates and investor confidence also play a role. Things are more uncertain right now as we deal with ongoing trade disputes between China, the US, and the coronavirus pandemic.

  • Even though buying at the bottom could still result in losses, it is possible to buy. Stock markets tend to follow an upward trend over the long-term. Even if you can predict the bottom of the stock market, waiting to purchase the dip could leave you out on potential gains .
  • Emotions can make us crazy. Emotions can make it difficult to decide when to sell or buy your hard-earned cash. People are more likely to sell stock when they see it fall. When prices go up again, fear can influence people. If you’re greedy, then buying high is a good investment strategy.
  • Timing the market does not work. Investors may use technical indicators or stock valuation metrics to decide if they should sell or buy. It requires a lot of discipline and knowledge in investing. Markets are unpredictable and even the best market-timers could make mistakes.

Here’s where dollar cost averaging comes into play

What if timing the market isn’t working? The dollar cost averaging strategy is the answer.

Dollar-cost averaging is a strategy that allows you to invest a fixed amount at a fixed time (e.g. Monthly or quarterly. It doesn’t really matter whether the stock market is increasing or decreasing – just follow the schedule.

Here are the reasons dollar-cost averaging works.

  • Don’t enter the market at the wrong moment You can minimize the risk of losing all your money when the market is at its highest.
  • Avoid emotional-based investing. Dollar-cost averaging keeps you from making emotional adjustments to your investment strategy.

When the stock market is in decline, this can be a powerful strategy. This allows you to invest even when stock prices are low. This will allow you to make bigger gains once stock prices rise again.

Focus on the long run and your long-term investment goals

Dollar-cost averaging is a method of avoiding being influenced by short-term market movements. Stock market fluctuations will occur year to year and may experience booms and crashes. You will have a greater chance of surviving these fluctuations and generating positive returns if you keep your investments going for many years. Remember what you are investing for, like your retirement.

Do not invest in individual stocks, but rather in funds

Dollar-cost averaging won’t save your portfolio, however, if you pick bad stocks. It is important to do your research before you invest. Unit trust funds are a good option if you’re not sure of the quality of individual stocks. You can diversify your portfolio by investing in unit trust funds. This will allow you to spread your risk among many types of investments. Your EPF savings can be used to invest. This allows you to diversify your savings and avoid having to withdraw additional cash.

It’s easier than ever to diversify retirement savings. Employees Provident Fund (EPF), recently reduced its upfront fees to 0% for its online investment platform, EPF i-Invest. This reduction will be effective until April 30, 2021. You won’t be charged upfront for dollar-cost average into unit trust funds.

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