Dear readers, the stock markets have been getting volatile in recent months, but perhaps less much so in terms of frequency and intensity than what investors have experienced in year 2021. The key factors driving the volatilities are mainly the US Federal Reserves increase of interest rates.
With investors watching prudently how the stock markets unfold, it has been a very good market for savers as banks and financial institutions increase the short-term savings interests that now average more than 2% per annum in general.
And I believe with the slew of savings products on offer, savers have been flocking in droves to these banks to deposit their monies. And, this is where investors should avoid one practice.
And that practice is none other than over allocation of their portfolio into these high savings account which lock up the investors’ capital for a number of years. This is because when the stock markets crash, what investors need is a good amount of capital to take advantage of a good entry point in the markets. As investors, we do not want to find ourselves with our monies locked in fixed deposits with just 2% per annum when the capital return from investing at the bottom or one of the bottoms of the stock markets corrections can be much more rewarding.
That is why I always advise investors to invest in short-term savings products that offer them an easy liquidation or without penalty for liquidation before maturity of the products.
As the cliché goes, Cash is King in terms of stock market corrections.
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