10 Things to watch out for when...Investing in a bear market

PUBLISHED : Sunday, 13 October, 2002, 12:00am
UPDATED : Sunday, 13 October, 2002, 12:00am

Tough times: As recent history has shown, it is relatively easy to make money in a bull market but when things are on a downward slide it gets harder. Remember you haven't actually made a loss on your portfolio until you sell.

Planning: Sticking to a realistic long-term investment plan is of utmost importance. Don't focus on short-term market gyrations if you are a long-term buy-and-hold investor. Many investors make the mistake of selling (or buying) at the worst possible time based on emotion or panic.

Diversification: This is the oldest mantra in the investing book. Only those with perfect knowledge can put all their eggs in one basket. Not all investors have been having a bad ride, according to Kevin Ng, relationship manager at ING Financial Planning. Bonds, commodities and certain Asian markets have been good bets this year.

Revisit your plan: Sit down with your financial adviser and examine your investing strategy to take account of changing circumstances, investing horizons and market conditions. If necessary, make a few educated adjustments.

Do not time the market: Dollar-cost averaging is a well-sung strategy but one that does pay off. The time to accumulate stocks is when the market is down. By sticking with a monthly contribution plan, you will balance out the ups and downs in your portfolio. According to Mr Ng, such a low point for equities could make the case for some lump-sum investing.

Commodities: Investing in commodities is a specialist area. Retail investors hoping to reap gains here should opt for professionally managed products, such as hedge funds or those that invest in oil or gold companies.

Money markets: The cash component of any investment plan should be determined by individual risk appetite. Risk-averse investors may wish to adjust their cash holdings through money funds, currency allocations and fixed deposit to ride out the downturn. Bear in mind that interest rates are at record lows, inhibiting returns.

Bonds: Bonds have brought in about 10 per cent this year, according to Mr Ng. But take professional advice on the outlook for these assets.

Alternative investments: Consider allocating some money to alternatives, ranging from jewellery to hedge funds. Hedge funds claim to make money when markets are going down through long-short strategies, or even by investing in things such as distressed debt.

Property: Many are tempted to put more money into fixed brick-and-mortar holdings when equity markets tank. Property works on a different cycle to equities, but this sector has already done well in the US, Britain and Australia and may not outperform going forward.

Graphic: TRIGGBgwz