A beginner’s guide to navigating market volatility

A beginner’s guide to navigating market volatility

Investing can be stressful, especially when markets are unpredictable. But here’s the truth: market ups and downs are expected and normal part of the investment journey. Economic changes and global events can often be a challenge to investors, but understanding what’s happening without making impulsive decisions is key to staying on track.

Take the recent ‘sea of red’ incident as an example. On 5 August 2024, the US stock market experienced a significant downturn with the Dow Jones, S&P 500 and Nasdaq dropping by 2.5%, 3.0%, and 3.43%, respectively. So, why did this happen?

Here are two likely reasons for the market drop:

1. High unemployment rates: Reports showed that the US job market wasn’t performing as well as expected. Only 114,000 new jobs were added, falling short of the anticipated 175,000. Additionally, the unemployment rate rose from 4.1% to 4.3%. These sparked fears of a potential recession, leading to a sharp sell-off in the markets.

2. Bank of Japan’s rate hike: On 31 July 2024, the Bank of Japan raised interest rates from 0.1% to 0.25%, causing the Japanese Yen to strengthen. Many investors who had borrowed in Yen to invest in other assets began selling off their investments, causing further market declines.

What does this mean for ASEAN and Malaysia?
While the global situation has caused some short-term drops in the stock prices, the outlook for ASEAN and Malaysia remains positive. These regions have strong local economies and are less reliant on the tech sector, which means they are more resilient in times of global uncertainties.

How to stay the course?

1. Don’t time the market but focus on long-term growth: It’s tempting to buy low and sell high, but predicting market movements is nearly impossible. Historically, the stock market has recovered from downturns and continued to grow over time. Focus on the long term to weather short-term volatility.

2. Look for opportunities: When the market dips, it can be a good time to invest more, especially if you’re in it for the long run. Market drops often present opportunities to buy at lower prices, potentially setting you up for gains when the market rebounds.

3. Diversify your investments: Spread your investments across different types of assets, like stocks, gold and bonds to reduce risk. This way, if one part of the market is down, other parts of your portfolio might still perform well.

Remember, staying informed and keeping your long-term financial goals in mind can help you navigate the ups and downs of the market with confidence. Don’t let short-term market movements derail your investment journey.