The market is definitely in turmoil right now. Safe to say that it is happening all over the world. The reasons could be different, but the gist is still about inflation and the war that is still happening, especially with recent news on how Russia is not seemingly going to back down.
In Asia, there is China that people do still bear in mind even though it is not hitting the headline as big as before. However, it still has its own issue about the property sector, covid-19 policy, and recently about Taiwan.
Despite the chaos that is happening, let’s focus on inflation. Almost every week we could see the headlines on how banks are raising their rate by a certain bps. Recently, Singapore has also posted how their core inflation is inching towards 14-year high. You can find the news here or anywhere else pretty much.
One thing for sure though, is that people start to talk about how it might be better to just stay on the sideline, or, with the latest trend, just buy bonds.
The reason people started to talk about buying bonds is because of Mr. Powell. He recently just decided to hike the rate again and also mentioned how they won’t stop until inflation really dies down pretty much. Despite their inflation rate having gone down, they still insist on it.
This caused some people to think that they might be wrong in doing so and should be more dovish as the information is a lagging indicator. Other people, though, think that it is a good move as you should ensure you really kill the inflation otherwise it might risk the inflation rate to increase again.
As such, the interest rate now stands at 3% to 3.25% with an expectation of it going above 4% at least. This caused bond yields to increase too.
Not only is treasury yield (near term especially) increasing, the rate for fixed deposits by banks also started to increase. In Singapore, there is this news that made the talk recently. You can find it here.
It caused people to talk about it and discuss it. Some people just feel that it is kind of stupid when one can just buy Singapore Bonds, others feel it is just fair especially if the people don’t trust anything other than banks.
Fair enough, since bond yields can still go up further while the fixed deposit rates are still lower. Then, people start to argue how during this period, people should buy stocks instead and disagree on buying Treasury Bills (T-Bills), Singapore Government Securities (SGS), or Singapore Savings Bonds (SSB).
“Be fearful when others are greedy and be greedy when others are fearful.” — Warren Buffett
Then suddenly you start to hear a lot about the famous quote above. From all these noises, discussions, or arguments, I feel like there should be different actions for different situations. Let’s talk about it more.
It is true that the stock market is in red while the yield for SSB and T-Bills have been increasing. People could be selling in panic, or sell off everything and put in the cash in SSB or T-Bills with yield of, let’s say 3%. They might think that it is better to earn something rather than nothing.
There are also people who start to laugh at that idea and bring out their big chest and start to buy stocks every time they go down further instead.
To me, there should be some kinds of consideration and for people who might not know well, don’t just follow the crowd blindly. At least know why you are buying which asset class.
Speaking of which one to buy during this period, from all the discussions, I think it depends on your own situation.
The starting of the considerations can be from how much cash you have now. This is because during this period, theoretically speaking there can be a lot of attractive stocks to buy, from different markets, as well as bonds which are having increasingly attractive yields.
Therefore, your capital is the important one. How much you have and how much you can afford. If you have a lot of cash around, it’s easier to decide. However, if you don’t have much, I think it is best to consider based on your priority.
There are 3 considerations:
- Long term investment
- Growing your war chest for investment
- Growing your emergency fund
If you have limited cash, let’s think together which one might be the best action in the near term.
P.S. I am by no means a professional at this point, and this article is not investment advice.
1. Long Term Investment
Theoretically speaking, if you believe that (good) stocks will rise or recover especially, in the long term, it is actually making sense to buy now, or rather to buy the dip. This is especially so when everybody is saying the “worst” recession is coming or in the process.
Why? Imagine the stocks recover, then run up. This can be a good potential multibaggers. The return can be quite significant that you can just laugh. However, this is not investing advice, I am just trying to consider it from this perspective. We still need to consider other possibilities before making decisions.
There are people who strongly believe that if you want to build wealth, such a situation is the best time to build. According to them, buying bonds with such yields may be good for the short term, but in the long term, investing stocks still can win a lot better.
Therefore, if you buy when the stocks are undervalued, it can benefit you even more. Hence, you may consider using your limited extra cash to buy good/great stocks now with your target in the long term.
2. Growing War Chest For Investment
If you want to work you idling money from your war chest, buying bonds could be the consideration. SSB or T-Bills could be worth it especially when the yield is getting more attractive.
However, there is one more thing that you need to consider. War chest is typically used for investment. The chest is supposed to store your cash that you intend to use to invest in stocks. The stock market is unpredictable and it can drop in a flash, and rise in a day. So you need some liquidity, just in case you want to pull out your cash.
In the meantime, you might want to work your idle money while waiting. SSB provides better liquidity than T-Bills in a sense that you can withdraw anytime and it will be returned to you in a month’s time. For T-Bills, you have to lock your fund for like 6 months or 1 year. You could sell earlier, but there is a higher risk of it losing depending on the rate at that time. Hence, it is safer to get SSB instead.
On top of that, SSB allows you to lock in your interest rate while for T-Bills, after it reaches maturity in 6 months (e.g.), you need to think how to reinvest again. If for some reason, the yield drops, your money that you get from T-Bills will probably be idling around again, while your money in SSB is still working as the interest rate has been locked for 10 years.
So, for this case, you have to consider multiple factors to know whether to invest in SSB or T-Bills. Personally, I think liquidity sounds better for your war chest. Of course, if you are sure that you won’t use a certain amount for 6 months or you have a lot of extra cash, feel free to buy T-Bills instead, because from my observations T-Bills tend to have higher rates and you can get your interest right from the beginning.
But again, this is not investing advice, it is just to help you to consider deeper based on your own needs.
For people who are outside of Singapore, you can still use the same idea to consider yourself.
3. Growing Emergency Fund
Since it is regarding your emergency fund, investing in stocks is definitely not the best idea. It is called “emergency” for a reason. Hence, naturally, the best course to grow and if you want to try to grow, is by looking at alternatives that provide least to no risk.
Well, theoretically speaking, it is not growing per se, because the amount you can get from buying bonds depends on how much you are purchasing. So I think it’s best to say it is only if you want to earn a little bit here and there using your emergency fund.
However, the one thing for sure is you can’t use it to invest in something risky. SSB or T-Bills are known to be AAA rated and backed by the Singapore government, so people tend to say that it is as good as “risk free”. So, perhaps, a big MAYBE, you can use a portion of the fund to buy these. At least, you can earn a bit more by taking advantage of the increasing yield. Perhaps, you can even grow your fund by a little bit more too. Personally, I think that since it is your emergency fund, liquidity is best because you don’t want to sell it at a loss when you need it.
Also, it is perfectly fine if you don’t want to touch your emergency fund as they are for emergencies. You shouldn’t touch them until when it is necessary. However, if you want, it’s best not to use all (just my personal opinion, again).
These ideas could still work for people outside of Singapore.
Again, this is not investing advice, it is just a thought or consideration that perhaps can help you to think better amid all the noises that are happening all around the world.
Other than all the considerations above, there is, of course, another consideration, which is to just sit on the sideline and wait for all to settle down if you don’t feel comfortable at all. After all, risk management is still the one thing that everybody should think about so that you can sleep soundly at night.
Wrap Up
People are always looking for ways to get more returns. However, in the current market, we have to be very careful and not blindly follow the crowd. It’s always good to do some considerations on your own.
With that, thank you for reading. If you think these might be helpful to other people, feel free to share. Also, I am not a professional and this article is by no means an advice to buy nor sell. Always do your own research. Believe in yourself and not other people.
Thank you for reading.
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