[The Editors' Verdict] Don't Put All Your Eggs in One Basket

[Asia Economy Reporter Jeon Pil-su] “Are you investing in stocks by any chance?”

On the 28th of last month, when the main news on public broadcast TV was covering the stock market crash, my elderly mother from my hometown called me after a long time and asked this question. She must have been startled by the sensational news that even mentioned a financial crisis. There is a joke that says when the 9 o’clock news (now the 8 o’clock news) reports a stock market crash, you should buy stocks, and when it reports a stock boom, you should sell. Seeing even my eighty-year-old grandmother in the countryside worrying about stocks made me realize that investors’ fear had reached its peak.

The next day, when the Korean and U.S. stock markets simultaneously rebounded, I thought, “Old stock market proverbs never fail,” and patted my knee. But, to my surprise, the indices that were strong in the morning gave up most of their gains as time passed. Until the last day of September, the market continued to weaken. Another stock market saying, “There is a basement below the floor,” frequently appeared in market commentary articles.

This is a market dominated more by fear than hope. It is hard to find acquaintances who are investing with bright faces. One friend recalled the global financial crisis, saying they had lost about 40% since Chuseok (Korean Thanksgiving). Because the index dropped by 300 points in just over two weeks, even the so-called top players are struggling to respond properly. The average return of the top 10 net purchased stocks by individual investors in September was -12.37%. During the same period, the average returns for foreign and institutional investors were -10.83% and -9.24%, respectively. Although foreigners and institutions performed relatively better, they could not escape the impact of the sharp decline, making it a case of “six of one, half a dozen of the other.”

Not only investors but also governments around the world are confused. The UK government, which can be considered a pioneer of modern capitalism, is a prime example. After proposing a tax cut plan and facing backlash, it moved to purchase government bonds, and when that failed, it eventually withdrew the tax cut plan, creating a farcical situation. Meanwhile, exchange rates and global stock markets fluctuated wildly. The Korean government, which has done nothing but spout vague political rhetoric about stabilizing people’s livelihoods, even looks better by comparison.

Given this situation, voices encouraging stock investment with the phrase “crisis is opportunity” are not heard. Instead, the frightening forecast that the crisis is just beginning is louder. So, is it time to leave the stock market now? The answer is “unknown.” It is impossible to predict the stock market accurately. No one knows the market tomorrow, next month, or next year.

Still, there are ways to make money in the stock market. There is a Western proverb, “Don’t put all your eggs in one basket.” It is often quoted to advise against concentrating investments in one or two stocks and to encourage diversification. Can you make money by diversifying when the market is crashing? Even if you diversify during a market crash, you will incur losses. When everything is falling, diversification doesn’t help much.

The answer is to divide time. If you buy stocks in installments every month, you can reduce the risk caused by price fluctuations. Over the long term of 10 or 20 years, the stock market has ultimately risen. The KOSPI, which recently dropped nearly 1,000 points in a year and drove investors into a panic, has a 20-year return exceeding 233% (as of September 30). Of course, investing regularly like this does not always guarantee good returns. The KOSPI’s return over the past 10 years was only 7.98%. The average annual return is less than 1%. Investing is a battle against time. It depends on who can keep their eggs in the basket steadily and for a long time.

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