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Stocks Are Plummeting Due To The Global COVID-19 Scare

There is a scarcity of resources wherever you look. Toilet papers are flying off the shelves like the migratory Great snipe. People are typically seen hoarding cleaning supplies such as disinfectant sprays, antibacterial wipes, hand sanitizers, and so on. It is difficult to source out masks too!

With the scarcity of supplies, travel restrictions, and the limited capacity to work, the global COVID-19 pandemic has affected the economy in more ways than one. Last week, Wall Street plunged with Dow Jones confirming a bear market for the first time since the 2008 financial crisis. The escalating health fears sent the stock market into a nosedive, which is its worst state since the 1987 market crash.

The Dow Jones Industrial Average fell 1,464.63 points, bringing it 20% below its record set last month. This is what Wall Street calls a “bear market”. A bear market is a condition in which securities’ prices go 20% down or more from its recent highs. It is usually due to the widespread pessimism and negative investor sentiment. S&P 500 lost 140.84 points, which is just 1% point away from falling into the bear territory. While, Nasdaq Composite dropped 392.20 points.

Stocks dove even lower after the World Health Organization declared the virus outbreak as a pandemic. Stock prices reflect expectations of future profits and investors heavily perceive that the virus can reduce profits. Thus, a huge number of investors sought for the coordination of governments and central banks around the world to help control the economical threat of this virus. Until the extent of the decline is clearer, the natural reaction of many is to sell stocks.

The economic trajectory that seemed reasonable a few months a go is not going to be the same for a few months or a year. The wave of corporate conference cancellations, music festival cancellations, directives to work from home, and travel bans will exact a cost on businesses. Airlines, industrial companies, small businesses, educational establishments, service industries, and tech companies are all affected. We are all affected because the spending habits of consumers drive much of our economic activity.

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How long will this economic disruptions last and how deep will the economic market go?

Sources: 1, 2, & 3

How To Choose The Best Stock Broker For You

Money does not come from trees! Choosing what is best for you should be influenced by strategic research on the available brokerage firms in the country. Consider these factors…

STICK TO THE BUDGET

It goes without saying that your performance in the stock market depends on your budget. If you want to start investing, but do not have thousands of dollars in your arsenal then, you can start with as little as S$1,000.

Say that you want to own stocks through the CDP (The Central Depository) then, you will have to set up a CDP securities account. The CDP account is operated by the Singapore Exchange. It provides integrated clearing, settlement, and depository facilities for customers in the Singapore securities market.

To be eligible to open an account, you must at least 18 years old and not an undischarged bankrupt. You can deal with as many brokerage firms as you want with one CDP account.

COMPARE THE BROKERAGE FEES

Brokerage firms allow you to buy and sell shares on the stock market. It is important to note that they charge you brokerage or commission fees for every transaction you make. When you buy shares, you get charged. When you sell shares, you get charged. These fees add up!

Most investors want to buy low and sell high. Expect to be charged commission fees multiple times by doing so. On the other hand, commission fees won’t make much difference to your if you just want to “park” your money.

KNOW THE DIFFERENCES ONLINE

Kids, there was a time when investors where required to call their brokers to deal with them directly. Do not get me started with how stock prices and other information were passed down! Those days are gone!

Nowadays, investors are blessed with online trading platforms that allow them to check stock prices and complete deals on the go. Some brokerage firms even have mobile applications.

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It is good to familiarize yourself with these online features before you open an account. For instance, day traders need to have a live and streaming data to get started. Choose a broker whose online features (e.g., daily news, company reports, or strategy guides) are suited to your lifestyle. Consider opening several trial accounts with many online brokers to immerse yourself with their service before signing up.

Sources: 1 & 2

Stocks 101: A Guide For Newbies

Tackle your busy life while earning money on the side by investing your money. Let your money work for you to achieve the future you have always dreamed of. Renowned investor Warren Buffett defines investing as the “the process of laying out money now to receive more money in the future.”

(Image credit: Fortune Live Media, via Flickr)

To start investing, you must know what is a stock is first.

WHAT IS A STOCK?

Whether you call it security or equity, a share of stock is a legal ownership in a business. Businesses or corporations issue stocks to gain money. It comes in two varieties – preferred and common. Preferred stock comes with a predetermined dividend payment. While, the common stock allows the stockholder an access to a proportionate share of a company’a profits or losses. It is to you to choose whichever suits you best.

HOW DO YOU MAKE MONEY WITH STOCKS?

There are two ways to make money from owning and investing in stocks. You can make money by reaping the increase in stock price or dividends. Because these two accumulate over time, just one year’s investment in a premium can yield a solid return in the next couple of decades. You can look up blue chip companies such as Coca-Cola and Disney.

The Father of Value Investing, Benjamin Graham, once said:

“The real money in investing will have to be made—as most of it has been in the past—not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value.”

WHY SHOULD YOU INVEST?

The stock market provides high returns. You should invest to grow your wealth. However, I cannot guarantee how your stocks will perform. You need to understand that strategy application and diversification aids in growing your wealth. Diversifying your investments by including stocks along with your bonds and assets can help protect you from the inherent volatility of the financial markets.

WHAT IS DIVERSIFICATION?

To provide cushion from the risks that come with the stock market, one can apply diversification. Think of it as not putting all your eggs in one basket. In order to diversify your stocks portfolio, you may need a significant amount of money to invest. It is nearly impossible to create a well-diversified portfolio with S$1,000 alone.

This is where mutual funds come into play. Mutual funds tend to have a large number of stocks and other investments whereby it is controlled by a portfolio manager. It is more diversified than a single stock in one company. This is something that you must think about.

Sources: 1 & 2

Will High Interest Rates Affect The Local Stocks?

In my road towards financial independence, I decided to invest some of funds to grow my wealth. I encouraged my colleagues to do the same by inviting a reputable insurance agent in the workplace. The insurance agent stressed how one’s risk level play an integral part in his or her actions. For many investors, they are worried about losses and interest rates.

Interest rates in Singapore are not set by the central bank or Monetary Authority of Singapore. Instead, the rates are determined by the global market and are strongly affected by the United States.

THE FED

In an attempt to control inflation, the United States’ federal fund rate is used by the Federal Reserve (or the Fed). The Fed attempts to shrink the supply of money available for purchasing by increasing the federal funds rate. Doing so makes earning money hard and expensive to obtain.

The question of “how stocks would react when interest rates rise” is essential for many market participants. Interest rates can have a significant impact on the price that investors are willing to pay for varying asset classes. For instance, investors tend to prefer lower risk and high yield investments like bonds over stock.

Truth be told, increasing federal funds rates does not directly affect the stock market. The institutions who borrow money from the Fed are directly affected by these rates. However, I cannot deny the daunting ripple effect.

Since it costs more to borrow money from the Fed, financial institutions (e.g., local banks) often increase the rates they charge for the clients to loan money. Individuals are affected through elevation in credit card and mortgage interest rates.

CHASING THE MONEY

Stocks and other asset classes such as bonds, real estate, and cash are in a constant race for the investors’ capital. Theory states that investors should not pay up for stocks when interest rates are high. Firstly, businesses experience decreased consumer spending and increased cost of borrowing money. Secondly, bonds and other asset classes such as fixed deposits are seen as more attractive.

On the other hand, when rates are low, it makes sense to bid up stocks. Bonds are not capable of generating a decent return during this time. Everything comes down to the risk-reward profile of the investment. When interest rate rise, the risk-reward for bonds become more attractive as the yields are higher than when interest rates were lower.

CONSUMER BEHAVIOR

Changes in the interest rates can have diverse effects on the consumers’ spending habits. It depends on a number of factors including projected rate changes, consumer confidence, and overall health of the economy.

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As an illustration, consumers may be influenced to spend less money if they believe that the purchasing power of their dollars will be eroded by inflation.

BOTTOM-LINE

Movement in interest rates can affect both the investors’ and the consumers’ sentiments. Investors will be worried about the asset classes that they will partake in. Long-term investors know that these changes will only affect the prices of their assets in the short run. However, short-term investors know that these rates are significant.

Let us move on to the consumer behavior. Consumers tend to borrow more when rates are low and save more when rates are high. They must decide when to save or spend money.

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Economist Mark Skousen once said:

“The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to business spending, price inflation, interest rates, and productivity gains.”

Sources: 1, 2, 3, 4, & 5

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