Thursday, June 08, 2006

Effect of market declines on investment strategy

Asian equity markets took big losses today. Some of the lowlights:

1.Taiwan: - 4.25%
2.Hong Kong: - 2.3%
3.Thailand: - 1.83%
4.Japan: - 3.07%
5.India: - 4.72%
6.Korea: - 3.45%

Silver has declined another 1.3% to US$11.73. Other commodities have also declined with the CRB Index down about 2.3%.

Today's declines follow meaningful declines over the last month for most of these markets. Many are expecting further declines.

The declines seem to be largely due to two factors: rising interest rates and valuations that were becoming stretched.

How does this affect my investment strategy?

I am currently dollar cost averaging aportion of my savings into Asian and European smaller company funds. The lower prices are a plus for this strategy over the longer term.

For investments which are not part of the dollar cost averaging strategy (most of my existing investments) the decline in prices is certainly painful in the short term. Much of the gains from the early part of this year have been wiped out. However, I have decided not to attempt to aggresively time the market by selling either my equity or my property holdings.

The question is whether I use savings not committed to the dollar cost averaging strategy to acquire additional investments at these lower prices or to accelerate the repayment of some of my mortgage debt as a response to rising interest rates? Watch this space.

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