New investors are often spooked by the belief that September and October are traditionally the worst two months for the markets.
In the US, this experience dates back to 1928.
What is it about these two months that's so bad for the markets?
Mr Vasu Menon, Vice-President and Senior Investment Strategist, Wealth Management Singapore, OCBC Bank: When looking at the historical performance of stock markets in September and October for seasonal patterns, it may be more meaningful to look at just the data over the last seven years (instead of since 1928) as the 2007/2008 global financial crisis (GFC) has impacted global economies and financial markets significantly and altered the investment paradigm.
The world economy is still reeling from the aftershocks of the GFC as major central banks are still loosening monetary policy and adopting unorthodox measures to help economies regain their footing and reduce the downside risk.
Despite everything that has been done so far, the outlook for the world economy and financial markets remains highly uncertain and volatile, making historical seasonal patterns less meaningful as a predictor of future performance.
But in early August, Wall Street suffered its biggest sell-off since the Brexit referendum. Is that proof in the pudding?
Mr Menon: No doubt, Wall Street may have suffered its biggest sell-off since the Brexit referendum, but this was probably due to complacency which led to investors getting spooked when some US Federal Reserve officials signalled that the Fed funds rate may rise sooner than expected in September instead of December.
Also, the US stock market has done exceptionally well relative to its peers in the past seven years, and valuations are now less attractive than other major markets, making Wall Street susceptible to bad news and a correction.
Q: How should investors adjust their positions? How can a bad period also present good investment opportunities?
Mr Zal Devitre, Head of Investments, Citibank Singapore: Investors today face an environment replete with risks, including political uncertainly, slowing global growth and compressed corporate earnings.
To be able to build a portfolio to protect against these risks and continue to grow wealth, investors should avoid attempting to time the market, which rarely works.
They should focus instead on building a portfolio that is in line with their risk tolerance and well-diversified across asset classes and geographies.
Market corrections often present the opportunity to buy assets at relatively attractive prices.
Given that equity and fixed income valuations are currently elevated in many markets, investors may consider holding a greater amount of cash than they ordinarily would to take advantage of buying opportunities.
Mr Menon: More immediately, October could prove to be choppy for markets in the run-up to the US Presidential elections on Nov 8.
Markets are worried that Republican candidate Donald Trump might win as he has promised unorthodox and radical policies which may spook investors initially.
So, if markets correct sharply in the event of a Trump victory, this could present a tactical buying opportunity for those with a strong risk appetite.
However, sharp pullbacks may not happen frequently, and investors cannot wait for such pullbacks to invest their money.
Investing is about taking a longer term view from a strategic perspective, and diversification is critical to protecting investors' portfolios.
Going forward, investors also need to change mindsets from focusing on capital gains to taking a more income-orientated investment approach.
This means paying greater attention to, and investing in, stocks, bonds or unit trusts that can offer fairly attractive yield.
Income (i.e. yield) will likely become an important part of returns going forward, given the environment of low growth and low interest rates, which could be a multi-year phenomenon.
This article was first published on October 02, 2016.
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