“Should we increase the weight of our stocks even now?”
This is the most frequently asked question at a recent consultation. Since the beginning of this year, domestic and foreign financial markets have repeatedly risen and adjusted without a clear direction. In particular, the recent short-term surge in the domestic stock market has led to the feeling of alienation (FOMO) of those who have not benefited from the rise and the “money move” phenomenon of terminating safe assets in pursuit of greater profits and heading to investment assets is hotter than ever.
However, in this situation, the investment judgment criteria should be shifted to the “role of assets” rather than the rate of return. This is because the approach should vary depending on whether the asset is for long-term growth, volatility buffering, or supplementing cash flows.
In the market where the direction is uncertain, it is more reasonable to make a “storage investment” in which you spend time and participate rather than a “timing” investment to watch the game at once. Accumulated investment is a strong management strategy that does not simply avoid risk, but uses volatility to lower average purchase unit prices and maintain a sense of psychological stability.
In particular, the “dividend growth and value-up” sector is the theme of accumulation that is paying attention to in highly volatile sections like now. Examples include financial stocks with strengthened shareholder return policies, undervalued blue-chip holding companies, and dividend growth stocks that steadily increase dividends. These stocks are a strong “psychological buffer” that helps investors continue their investment without giving up in the middle, as the firm return called dividends is supported even when stock prices fall.
The more volatile the phase, the more important the investment strategy is not prediction but management. Attempts to get the market direction right always seem attractive, but what determines actual performance is how consistently you implement the set principles. Rather than maximizing short-term returns, the reserve-type investment and dividend-oriented approach helps investors continue their plans without being swayed amid market changes. In the end, the success or failure of long-term investment is determined by an attitude that accurately understands one’s investment method and tolerable volatility and steadily executes it within its scope rather than a complex strategy. Volatility is not a risk to be avoided, but is converted into opportunity when it can be managed.
Even if you look at the recent portfolio of robo-advisor models, target date funds (TDF), EMP (ETF managed portfolio), and Income assets are evenly included. This is a result of a strategy to maintain an “asset structure” that can withstand any environment rather than a short-term market outlook.
The faster the market changes, the more investors should ask themselves “what role this asset plays in my portfolio” first, rather than thinking about “should I go in now?” As volatility increases, what is needed is not new information, but a clear criterion for managing the assets you already own.
In the end, long-term achievements are completed in the process of continuing to adhere to the clunky but strong principle of rebalancing, not the freshness of meeting the noise of the market.
From this point of view, the most vigilant thing in investment is not ‘confident’ but ‘urgent’. The more attention a particular asset or theme receives in a short period of time, the more likely it is for investors to be engulfed in anxiety that they may fall behind in the trend. However, the market has always over-reflected expectations and regained balance through adjustments. The moment you shake the principles of your portfolio by sticking to short-term performance, you lose the consistency of your investment strategy and are swayed by emotions.
In particular, the variance and rebalancing emphasized by robo-advisors or long-term asset allocation strategies are more of a minimum line of defense to protect assets even amid unexpected volatility than a technique to maximize profits. The process of adjusting the proportion between assets depending on market conditions sometimes requires uncomfortable choices to “reduce well-known assets and increase less-noticed assets.” However, the more these choices are repeated, the more long-term stability the portfolio can secure without being overly focused on certain directions.
In the end, the important thing in investment is not when to buy or sell, but on what criteria you judge and how consistently you adhere to those standards. The louder the market noise, the more simple questions investors have to return to. Is this asset in line with my goals and timeframe, and is the current weight still reasonable. Investment performance naturally follows when the process of answering this question is accumulated faithfully.
[Lim Eun-soon, head of KB Kookmin Bank’s Gwacheon Financial Center branch]
link