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It is normal that any financial market in the world experiences both bad and good
times. As an investor, you cannot expect to ride on the bulls all the time and you
must be prepared for market turbulence - when the bears start to party.
A recent example is when the market took a steep downturn after the announcement
by Bank Negara to curb excessive asset inflation. The big correction prompted many
investors to flee the market. Some margin players were forced to settle their trading
positions.
Investors should be cautious but certainly not panic when the market swings violently.
Local punters who buy hot stocks on rumours that are not fully supported by fundamentals
are the ones who will suffer greatly during market turbulence. If you are long-term
oriented and have adequately diversified into other investment options such as the
unit trust funds and bonds, you are likely to suffer the least.
Although the magnitude of the fall has been to a certain extent aggravated by certain
external factors such as the U.S. interest rate hike and the decline in the U.S.
market, investors particularly long-term investors who invest in unit trust funds
should not unnecessarily panic and sell their holdings. Panic-selling is the worst
thing you could do and will only add more salt to the wound.
Long-term investors should sit tight and not worry too much about the market volatility.
It is impossible for any market to keep rising or falling. Research has shown that
if you are constantly jumping in and out of markets trying to catch the bull and
escape the bear, you could end up to be the biggest loser instead.
Because it is not possible for you to perfectly buy at highs and sell at lows, a
better strategy would be to top up further when the market is down and make sure
you do not miss the "big" days when sentiment changes and prices jump.
It is always difficult for investors to try to accurately anticipate the market's
volatile movement. Many seasoned professionals were "surprised" when the
market turned bearish recently. One way of ensuring that you do not miss the good
days would be to take advantage of the dollar-cost averaging. You would receive much
better protection for your hard-earned money with the method.
Dollar-cost averaging is a very effective way to smooth out your investment volatility.
How does in actually work? There is certainly nothing fancy about the method.
Since a constant amount of money is invested at regular intervals, you own more shares
when the price is low and fewer shares when the price is high. In other words, you
even out the risk of buying only at the peaks.
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