Financial Freedom SG

On Friday 22nd of July, the markets in Asia all went down following the lead from the US markets. However, the market in US at this moment as I am blogging is recovering the grounds that it lost yesterday.

This small example shows how interconnected the world is right now. My previous article about diversification relates to spreading one's risk into the various markets. However, if all the markets in the world plunges in a steep fall, there is nowhere where your money will be safe. In this situation, it would be timely to remember that if you had bought wisely, the shares that you have bought would have gone down, but the drop will be less than other similar companies and also the company does not go bust easily. Paradoxically, it reinforces the need to diversify your holdings. Imagine if you had held only the shares of the market darling at the time and the share prices of this company plunges during a steep market drop and news that the favoured company faces a profit warning. There is no doubt the shares will have gone into a massive drop. In the book, 'The Intelligent Investor', the are a lot of examples of companies past and present who were the favourite funds of many investors and became next to worthless in a very short time.

For myself, as I am in Singapore and familiar with some Singapore stocks and shares, I am buying shares of Singapore companies, however, I am diversifying the risks somewhat by buying an index fund that invests in the S&P 500 and the returns have been okay so far. Also, I am also buying into the Asian stock markets by buying a unit trust/mutual fund that invest in this region. Both of my funds are being bought using a small initial payment and then using the dollar cost averagiong method which I had mentioned in a previous post.

For another view about how dollar cost averaging can help you to do well when you invest in collective funds, you can read this article in reply to a reader's question about the use of dollar cost averaging. And as the article mention, in a falling market like what happened today in the Asian markets and yesterday in the US markets, dollar cost averaging in funds is the best bet to recover your investment in a shorter time. You just need to smile every time your money is able to buy more units of the funds you have invested as the prices is low in a falling market. You know that when the market is up, your fund will be making a load of money. I used this strategy during a falling China market in the SARS and aftermath of 911 when I was invested in Greater China fund. I earned almost 100% returns on my investment.