[비즈한국] If you had to describe this year’s stock market in one word, it would be a ‘roller coaster.’ The KOSPI started the year at the 4300 level and surged more than double to reach 9385 on June 19. However, in the meantime, it experienced a correction of over 20% due to shocks originating in the Middle East in March, and on July 13, it saw a ‘Black Monday,’ plunging over 8% in a single day and losing the 7000 level. This was the result of concerns over a "peak-out" in the semiconductor industry combined with a sharp rise in oil prices due to geopolitical instability in the Middle East.
Market volatility is currently more extreme than ever, as evidenced by the fact that the circuit breaker has been triggered seven times this year. On top of this, the Bank of Korea raised its base interest rate by 0.25 percentage points to 2.75% per annum on July 16. This was the first hike in three years and six months since January 2023, and it was a unanimous decision by the Monetary Policy Committee. The move considered the June consumer price inflation rate of 3.2%, which significantly exceeded the inflation target, as well as rising housing prices in the metropolitan area, the growth of household debt, and the won-dollar exchange rate hovering around the 1500 level. With interest rates rising while the market is reeling, what should individual investors do?
There are certainly cases where selling off in a crashing market is necessary. However, the criterion for judgment should not be 'has the stock price fallen scarily,' but rather 'has the reason I bought this stock been undermined.' If a company's fundamentals remain intact, a crash is closer to a day to hold on or buy in increments rather than a day to sell unconditionally.
It is also better to divide both buying and selling. You must first abandon the premise that you can accurately time the bottom. It is realistic to stagger timing and prices when buying, and to exit in stages while leaving room for potential additional rebounds when selling.
As volatility increases, the temptation to make quick gains with leveraged and inverse products also grows. However, these products require you to be right not only about the direction but also the entry timing. In a market where indices fluctuate wildly, losses can balloon faster than expected. If the market is a roller coaster, using leverage is like riding it with the safety bar unfastened.
Now is the time to check your debt before your returns. The most direct signal that an interest rate hike sends to households is that the cost of borrowing money will rise again. If you are using variable-rate loans or overdraft accounts, you need to recalculate your interest burden. If interest rate hikes coincide with a stock market crash, you may be forced into a situation where you have to sell stocks at the most disadvantageous prices to repay loans. Reducing debt to a manageable level is more important than waiting for a rebound.
The same applies to cash. In a bull market, cash may seem like an unproductive asset, but in a crash, it prevents you from being forced to sell stocks due to living expenses or loan repayments. It also provides the flexibility to act when prices have fallen sufficiently. As the base interest rate rises, interest rates on savings and some cash-equivalent products are likely to be adjusted as well, reducing the opportunity cost of holding cash. Cash is not just the money left over after buying stocks; it is an asset intentionally secured to stay in the market for a long time.
You should also review your portfolio. In a phase where interest rates are rising, overvalued stocks that were valued based on future growth may fluctuate more significantly. On the other hand, companies that currently generate cash and have low debt have more room to relatively withstand the pressure.
While bond yields have become higher than before the interest rate hikes, existing bond prices may fall further if additional hikes follow. Instead of putting all your money into long-term bonds at once, it is necessary to stagger maturities and buying points. You should mix cash, short-term bonds, and stocks appropriately so that a crash in one asset class does not bring down the entire account.
What is needed right now is not the skill to time the next rebound. It is important to build a structure that allows you to hold on without disposing of stocks at bargain prices even if the rebound is delayed or if there is another crash. Confirming your investment reasons again, staggering trades, reducing debt, and keeping cash are not difficult things to do. However, they are also the principles most easily forgotten as the market heats up.
Volatility is the tuition that the market charges individual investors. At the same time, it is another name for opportunity for the prepared investor. Ultimately, the most certain way to protect your account and your peace of mind in a market where indices are plunging is not a secret trick, but sticking to basic and simple principles until the end.