Don’t just save money, you have to invest, they said. Invest as early as you can, they said. Inflation is the silent killer, they said.
So you did, and things are alright for a while, until one day you check your investment account and… wait why is my investment losing money? Isn’t the point of investing is for my money to grow? Why has the amount shrunk instead? This isn’t what I signed up for! I want my money back!
Wait, hold up. Don’t do anything yet. You need to remember these 5 things.
#1 – Welcome to your first bear market (this will be your first of many)
If this is your first bear market, welcome. Loosely defined as prolonged market declines, bear market is the opposite of bull market – prolonged market upside. It is normal for bull and bear markets to alternate every few years.
It is normal for your investment portfolio to lose some value during bear markets, but the good news is historically speaking, your portfolio will recover (and then some) when bull market comes.
Note: bear market is not the same as market correction, which is more short-term in nature. Read more about bear market vs market correction.
When did you start investing? During bull or bear market?
Chances are, you started your investment journey during the bull market.
For many people, the hype around bull market encourages them to start investing in the first place. Everyone around you, including (especially?) the media keeps talking about how the stock market or gold (or whatever hot investment at the moment) keeps reaching new record highs.
But it didn’t last. The ‘record highs’ announcements stopped, and replaced with ‘lowest since x’ announcements instead.
At first, you thought the price drop was temporary. Then, as time goes on, you start to panic and second-guess your decisions. You start to question yourself:
- Was investing really the right idea?
- Maybe I should have stuck to just saving instead?
- What should I do – should I sell or buy or do nothing? But if I sell, I will make a loss. Oh no, the price keeps falling, I have to make a decision now or I may end up with nothing!
I don’t know about you, but that was me. Almost everyone goes through their first bear market with a lot of fear.
It might sound unthinkable now, but the longer you invest, the more you will get used to bear markets. You may even start to expect it, when the market is going too well for too long.
#2 – Trying to time the market isn’t worth the effort.
Some of you might be looking at the bull vs bear market chart above and go, oh that’s easy! Just buy the investment when it’s at the lowest, and sell at its highest! If I study hard enough, I can make a lot of money from investing!
This, my friends, is what’s called trying to time the market. Some people do it professionally, most people do it amateurishly.
Noted investor Peter Lynch, who averaged an impressive 29.2% annual return between 1977 until 1990, argues that the effort to time the market is more trouble than it’s worth. As elaborated in his book, and shared in the Far More Money Has Been Lost By Investors Trying To Time Corrections Than In All Corrections Combined article,
“Starting in 1965 if you invested at the peak of the market in each year, your annual return was 10.6%. If you timed the market perfectly, invested at the low point of each year, your return was 11.7%. The difference between great timing and lousy timing was only 1.1%.”
Yes, just 1.1%. So which would you rather?
- Spend a few hours a day learning about stocks fundamentals and technicals in addition to working your day job, or
- Learn high-paying skills and find a job you love, while investing consistently in diversified funds.
It is absolutely fine to choose the first option if you love everything about the stock market. Some people do.
However, if you don’t, you’re better off with the second option. You will save so much time – time that you can use to spend on people and things you do care about.
So how does one invest while not actively learning about the stock market on a daily basis?
Simple. Just DCA in diversified funds.
#3 – Just DCA in diversified funds
DCA is short for Dollar Cost Averaging, which basically means investing consistently.
‘Consistently’ can mean daily, weekly, biweekly, monthly, quarterly, or biannually, but in most cases usually refers to weekly or monthly. If you are setting aside even RM100 per month to invest, you are DCA-ing.
DCA can also be applied to many types of investments, from gold to individual stocks, but it is best applied to diversified funds, aka funds with different asset allocations. An example of diversified funds is Wahed Invest’s portfolios, which contain two or more of the below individual assets/funds:
- US Stocks – Wahed FTSE USA Shariah ETF
- China Stocks – VP-DJ Shariah China A-Shares 100 ETF
- Sukuk – RHB Islamic Bond Fund, Malaysia Maybank Sukuk Fund
For example, the image below shows Wahed Invest’s Moderately Aggressive portfolio. As you can see, it is diversified in geographical presence, risk level and even includes gold investment (so you don’t need to buy extra gold for investment, unless you want to).
You can also automate your DCA with Wahed Invest. Simply setup Recurring Deposit via the app – you can choose to schedule a minimum of RM100 every week or month.
Doing DCA will save you so much time. After the initial Recurring Deposit setup, you don’t have to do anything else, just enjoy your life and let the auto-deduct do its thing. You can ignore the market news as well (if you can – they tend to be given a lot of airtime/ column space).
Use the time you saved to learn in-demand skills, find higher salaries and grow your income, so you can invest more. All you need is regularly meet up with your financial planner to review your overall financial life, just to make sure you are on track to reach your financial goals.
#4 – How about other investments? What if I lose money there?
So far, I have elaborated the DCA strategy for diversified funds, and how it is considered the most low-effort way to grow wealth over the long term.
However, some of you might be holding onto other types of investments that are currently down, maybe by a lot. Maybe you hold individual stocks. Maybe you hold cryptocurrencies. Maybe properties.
Here, cutting loss and rebalancing may be a good idea, or it may not – there are lots of other factors to consider. For such a big decision, you are advised to get professional advice from a licensed financial planner.
I know it’s tempting to DIY it, but do yourself a favour – skip the forums, just go straight to a professional. This is a no-brainer decision – the few hundred ringgit investment might potentially save you thousands, plus you save so much time as well.
#5 – Remember the fundamentals
Investment is an exciting topic. With the emergence of new technologies and options, plus easy access to financial influencers online who’re giving away ‘hot tips’, it’s easy to get caught up with it.
That’s all fine, whatever rocks your boat. Learning and experimenting with different investments isn’t wrong. In fact, it can be the best part of your investment learning journey.
However, make sure your foundation is right BEFORE you invest. Make sure you have:
- 3-6 months’ worth of living expenses as emergency funds if you are a salaried employee,
- 6-12 months’ worth of living expenses as emergency funds if you are self-employed,
- No high-interest consumer debt (credit card, personal loan etc)
- Increase your income (if you can)
- Never go 100% ‘all-in’ with one particular type of investment or asset
This way, you can ride out the bear market when it comes with minimal impact on your day-to-day life. Thanks to your savings and your ability to earn, you won’t be forced to liquidate long-term investments at a loss, nor have to take on debt to cover commitments.
My Investment with Wahed Invest
As of the time of writing, I have been investing with Wahed Invest for around 2.5 years, since November 2019. The ROI on my portfolio (Moderately Aggressive) hovered between 1x% to 2x%.
Your returns will be different from mine. I have seen people share negative returns all the way to 5X% returns. The ROI % depends on:
- At which point you entered the market. Remember, in a bull market, every investor is a genius
- The portfolio(s) you selected. As a general rule, the more aggressive the portfolio, the higher the risks and potential rewards
It is counter-intuitive, but the best time to invest is during the bear market, where you essentially get to scoop up assets at a discounted price. Personally, I am continuing my investments, including with Wahed Invest. My portfolio may be down but I won’t stop DCA-ing (while trying my best to ignore doomsday-type market news).
Some reasons why I chose Wahed Invest includes:
- Shariah Compliant – Halal investing is important to me
- Exposure to global market – I wanted to invest in US & China company stocks, as historical data shows KLSE (ie Malaysia market) has been underperforming in the last 10 years.
- Low capital requirement – Just RM100 to start
- Low fees – the fees range from 0.39% to 0.79%, more attractive than unit trust fees
- No lock in period – you can withdraw anytime
Kickstart your investing journey now – #LaburCaraWahed by downloading the Wahed Invest app: https://app.wahedinvest.com/go.
Note: When it comes to investments, there is #CapitalAtRisk and investors are advised to read Wahed Invest’s disclaimer before investing: https://ethical.wahedinvest.com/generaldisclaimers
Well, hopefully this article helped to ease your anxiety somewhat. Hope the points made in #1-5 is useful for you, not just in this bear cycle, but in future bear cycles you’ll go through in the future. All the best!