[Square] Survival Strategies in Highly Volatile Asset Markets

KB WM Star Advisory Group Yangjae PB Center Jeong Seongjin PB

As volatility in domestic and international stock markets has increased recently, investors lament that they have given back all the investment gains they struggled to earn throughout 2021 in just a few weeks. The market is littered with significant landmines such as tapering (asset purchase reduction), interest rate hikes, the spread of variant viruses, military movements near the Russia-Ukraine border, and the bankruptcy crisis of China’s Evergrande Group. Here, we introduce investment strategies that investors can refer to when they calmly assess the situation and respond to the market.

Recently, due to interest rate hikes, bank deposit rates have risen slightly, leading to reports that funds are flowing into banks. Bank deposits are classified as representative safe assets. However, while they are ‘safe’ in terms of preserving principal, investors need to critically consider whether they are truly ‘safe’ from the perspective of inflation and other factors.

During periods of inflation, economic textbooks commonly advise investing in tangible assets such as real estate, gold, and artworks. Since the value of cash relatively declines, investing in tangible assets is one way to preserve purchasing power. However, real estate investment faces some constraints as an investment tool due to various regulations, taxes, and loan restrictions on housing, and the difficulties faced by many small business tenants in commercial properties due to COVID-19 are well known.

Moreover, real estate investment requires a relatively large sum of money, making it difficult for young workers with monthly incomes to invest. Investing in artworks is challenging without knowledge of art. However, recently, the method of multiple investors sharing ownership of artworks by famous artists is worth paying attention to.

Domestic investors, often called Donghak Ants, select investment targets themselves and decide the timing, amount, and proportion of investments. Since it is inherently difficult to follow the information and networks of institutions or foreigners, this situation is described as a ‘tilted playing field.’ So, how about becoming an institution or foreign investor yourself?

In other words, try investing through indirect investment products such as funds or ETFs. Various funds and ETFs investing in domestic and overseas markets are available in the market. By examining the stocks held by funds and ETFs, it is possible to predict investment performance to some extent. By dedicating some time and effort to studying indirect investment products (funds, ETFs, etc.) as well as individual stocks, you can select products that suit you. Indirect investment products that you have studied and invested in yourself help maintain strong investor sentiment when market volatility increases.

Considering recent volatility, it is recommended to invest in installments several times rather than investing a large sum at once. Regular savings investment methods, where a fixed amount is deposited monthly, are also highly recommended. To do this, instead of betting all your assets on investment products, you should always keep 30-40% in liquidity and use additional investments when prices drop significantly to lower the average purchase price.

Next year is expected to be highly volatile, and it will be a time to closely monitor various news and economic indicators and act quickly. To maintain strong investor sentiment, investors must study the products or stocks they are investing in thoroughly to overcome difficult times well. The saying ‘You see as much as you know’ is perhaps the most urgently needed advice for investors at this point.

Jung Seong-jin PB, KB WM Star Advisory Group, Yangjae PB Center

This content was produced with the assistance of AI translation services.