How should investors approach volatile markets in 2020?

How should investors approach volatile markets in 2020?

March 2020 saw the largest market decline since the 2007–08 global financial crisis. The month saw a drop, or fall, of about 27% from market extremes. Most, if not all equity investors have seen their portfolios lose a significant portion of their profits and for those who have recently entered the markets, a significant portion of their invested capital.

While there was a respite in April and the decline was down to 18%, early numbers from May suggest the trend is turning negative again. This is instability for you!

This is a situation faced not only by Indian investors but also in almost every market on the stock exchange. The main culprit to be convicted is the COVID-19 epidemic.

This is an important phase that is likely to have a huge impact on wealth creation for equity investors.

 

  1. For the money, you have already invested

The money invested in equity is money you should not need in the near future. This is an informal yet cardinal rule of an equity investment or for that matter investing in any volatile asset class.

 

Now withdrawals, especially from equity mutual funds, are less than optimal steps. The market decline has been temporary so far. No one will invest in the asset class for the first time if there is a permanent place.

 

Mutual fund investors should note that the MF units they own are the best representatives of the economy. They did not get there without witnessing the market crash and economic downturn or two.

 

Stay invested and stick to a proper asset allocation based on your goals and objectives.

 

If your SIP consists of investment in equity funds that have a consistent performance history and these funds are linked to your objectives, continue them. A fall in the market means that you will get more units for the same amount. This will have a significant impact once the market recovers in years.

 

  1. For any surplus, you can remain seated

I do not recommend opportunistic shopping. Those who think that they have proved the market floor prematurely wrong. The best approach is again linked to your asset allocation based on your long-term and short-term objectives and investing a surplus in the same proportion.

 

  1. Asset allocation – how to approach and ensure that it meets your long term goals

This might be a good time to recoup your asset allocation and assess whether it was tied to your actual financial goals or was it just for the purpose of investing which was giving the best return?

When you combine your asset allocation with your goals, you select the asset class based on the amount of the final value you intend to reach. If the target is ten or more years away, then inflation is your biggest challenge and thus you choose equity, which has consistently beat inflation.

Similarly, for short-term goals, you choose fixed income-based investments that are stable and secure. You should always have an emergency fund in liquid investment that can help you deal with any loss of income or emergency requirements for a period of at least 6 months.

If you have complex goals, seek the help of advisors to decide what is the best asset allocation. Instead of just being aggressive or conservative, to pay any bank we can use TD Bank Routing Number to actually invest according to what you will need. This means allocating your savings in such a way that your goals are covered.

 

  1. What to do with the current SIP

If your SIP consists of investment in equity funds that have a consistent performance history and these funds are linked to your objectives, continue them. A fall in the market means that you will get more units for the same amount. This will have a significant impact once the market recovers in years.

 

  1. Direct Equity / Foreign Stock / Bitcoin – Where there is quick money

For the rational investor, equity mutual funds provide the best option, as you cannot predict which companies will do well and hold a portfolio that is selected by unbiased and time tested professionals Is the more logical option.

 

There is quick money for bookies and it is very similar to gambling with the same odds of luck or ruin.

 

  1. Intimidate – Should You Sell Everything and Go to PSU Bank FD

The sudden drop of 30% is no reason to consider equity as worthless. With Indian markets declining by more than 50% and recaptured over the long term, we are confident of the Indian and global economy recovering from it, even if that changes.

 

Bank FDs of reliable banks are great savings products for short-term investment. However, after long periods their tax returns have historically been at or below inflation. This means that they are not going to actually help you make money to meet your long term objectives. Remember that crises come and go, but your objectives are your own and require a long-term view.

 

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