Right now, your portfolio would have dropped by a lot. Should you sell? Should you wait before investing? In this video, I’ll explain why the stock market is crashing, and what am I planning to do. Enjoy!
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0:00 – Intro
0:44 – Why is the stock market crashing?
Many people have seen this crash coming a mile away, including Cathie Woods who predicted a “doozy of a crash will happen sometime this year”. So what triggered the crash? It’s fear of economy recovering.
When the pandemic came in 2020, economies all around the world were forced to shut down. To counter this, the Fed started printing money and announced near 0 interest rates in order to stimulate the economy.
But in 2021, the 30 year fixed rate mortgage suddenly spiked
And the 10 year breakever inflation rate went past the average 2%.
Meanwhile people were finally going back to work. All of this shows that the economy is recovering. So why did the market crash?
That’s because when interest rates are low, the cost of borrowing is cheap. So everyone invested into growth stocks, causing them to go up quickly. When 2021 came along and showed that interest rate is going back up, which meant that the cost of borrowing will be higher, eating away at the company’s profits. All of a sudden everyone realized that the stocks are now overpriced and started selling.
Instead, they started buying into value stocks, like General Electric, Bank of America, which will benefit from the economy reopening. This is known as The Great Rotation. All in all, this crash wasn’t caused by bad stuff like The Great Depression, Dot Com Bubble, 2017 Financial Crisis or the 2020 Pandemic.
4:08 – What’s my plan?
Now with the crash finally here, I get to buy the stocks that I want at a cheap price. If you are tempted to sell, just continue holding and the market will eventually recover. Don’t try to time the market either, because it won’t work. Identify your highest conviction stocks, then buy in every 5-10% in order to average down the price. You can consider using Interactive Brokers for fractional shares. When the market finally recovers, you would have bought in at one of the best possible prices.