frugal

Should we wait for a market pullback?

Recently, the stock market has been pretty volatile. It is not uncommon to see the market open red and close green, vice versa. Why is that so? This is because many investors are facing conflicting information and are unsure how to move ahead.

  1. There has been talks for another stimulus package

Apparently, the previous deadline was on Tuesday (20 October). However, the bureaucracies and the inefficiencies of the stimulus talks by the government has led to many delays. Yet, investors are still banking their hopes on this stimulus package.

The fact of the matter is people are still suffering from the pandemic, the root cause has not been solved. No amount of stimulus packages will help the economy.

  1. There has been a spike of coronavirus cases in the US

The recent spike in COVID-19 cases has been higher than the 2nd wave in July. This is clear that the pandemic is not over yet, especially for the US. (Thanks to rather strict government regulations in Singapore, our circumstances are under control.)

Until the main issue has been solved, which will definitely be not easy and requires a concerted effort from the government, the US economy will continue to suffer. This will come at the expense of traditional industries as compared to firms that are more willing to innovate and switch to technologically advanced solutions.

  1. The US Presidential Elections are coming

As it is right now, the Democrats (Biden) are winning the US election polls. However, this does not mean that he will win. It is just more likely. Although by no means a strong rule of thumb, the stock market tends to react less positively to a Democrat president, which might lead to a market pullback.

What does this mean for us, Singaporeans investing in the US?

This means that Singaporean investors tend to be more conservative right now. They don’t really dare to invest their cash into the stock market right now. Although different people will have different opinions of the current circumstances, my take is this.

If the US elections provide us with a good opportunity to buy into good companies with fair valuations, go ahead and buy it. In the meantime, if you spot good opportunities, buy into the companies and hold for the long term. However, if you want to profit off this US election quickly, I am afraid I cannot tell you what to do as well. I am as clueless as you.

Should we wait for a market pullback?

This really depends on your investing style.

If you are a strong believer of passive index investing like me, just buy into the market periodically without fail. There is no need to wait. What if Donald Trump gets re-elected and the market reacts positively? You would have missed out on a good day of gains. If the market really drops on election day, just put in more money into the market. If you believe in what you are buying, there is no reason to stop. Find a strong reason and have conviction.

If you are picking stocks, whether it is for value, growth or dividends, as usual, wait for a good opportunity. Your strategy should not deviate just because a Democrat won or Trump makes a random tweet.

What will I do?

For me, I did not buy any funds in October and I do not plan to do so. I am planning to just buy in 2 tranches. One right before the US election and one after the US election.

If the a market pullback occurs, this is a way to average down.

If it does not, whatever, it will not matter in the long run.

I really do not know what will happen and this is my way of Dollar Cost Averaging into the market. For the funds that I will buy, it will probably be VWRA or CSPX due to their tax efficiencies.

Leave a Reply

Your email address will not be published. Required fields are marked *