With the markets in turmoil what should you do?
We had written an article almost an year ago on what investors must do when nifty was making new all-time highs.
Now, with the direction changing. We have been inundated with calls from clients seeking whether they switch to higher debt allocation from equities, even at the cost of booking a loss. Time and again it has been proved that human behavioural forces of greed and fear factor can damage an investor’s portfolio in a significant way. As long as you are invested in good quality mutual funds and it is linked to your goals, you shall not lose your sleep over recent spike in market volatility. .
Who will be affected in this market correction?
1. Speculators who do margin trading.
2. Investors who parked money in equity with a shorter time horizon. Equity is always a long-term story.
3. Investors with funds which are not linked to a well-designed, goal anchored investment portfolio will get panicked.
Who will not be affected?
1. Investors with clearly written financial plan and asset allocation that goes hand-in-hand with their real life goals need not worry. This is the time to rebalance the portfolio.
2. Investors who have invested for long term in equity funds shall not worry. Over the last 20 years market has gone through many ups and downs. It is part of its natural progression. Markets take a “random walk” on its march towards capital appreciation over the long-run.
3. Those who have understood their risk profile and invested. This group of investors enjoy 30% returns from their portfolio also have stomach to digest a 20% negative returns from their portfolio. Corrections are bound to happen.
What we would suggest to our investors is to continue the SIP, you will be benefited with market ups and downs rupee cost averaging works best when markets are volatile. There is too much of unbridled noise from media and other sources. A 1000 point fall in Sensex is just under 3%, should be embraced as part of the long-term investing cycle.
As we wrote last year when markets were at all-time high, we would like to suggest the same now. We have met people who have been waiting for a correction and we know they will be still waiting to get into the lowest level of correction. IL&FS saga is a Pandora’s box and will take time to understand how much damage it will inflict on the market. As an individual investor you cannot do anything about it, these events are bound to happen. Over the past few decades, Markets have witnessed Harshad Mehta, Ketan Parekh scams, Dot com bubble and burst, 9/11 attacks, NDA government fall, 2008 global financial crisis, and have bounced back from all those lows.
We conclude by quoting legendary investor John Bogle, Founder of Vanguard – “The stock market is a giant distraction from the business of Investing.”. You cannot control the market. Stick to your asset allocation based on your individual life-goals. Do rebalance whenever required.
Switch off the business news channel, take a deep breath and go for a walk.
To help you analyze your portfolio, and identify what the best options are for your specific financial needs, contact us at: email@example.com