Authored by Abhinav Angrish, Founder, Investonline.in
The COVID-19 has hit the financial markets hard. The unprecedented volatility has unnerved even the most seasoned investors. Investors have been plagued by health and economic concerns. The gains of the past few years have vanished in thin air. Many investors find themselves in a tough predicament with regard to their investments.
History is full of market crashes and recovery. In an environment of greed and fear, every investor must stick to the basics to tide over difficult times. Instead of getting carried away by emotions, one must practice detached attitude to the market events and focus on long term goals.
One of the most important tenets of investing is to remain focused on one's financial goals even if markets are battered by volatility. Remember, each mutual fund investment was made with a specific goal in mind. If you are saving to fund your child's education, you must continue to do so regardless of market levels. Whenever the volatility unnerves you, ask yourself why you invested in the first place. Long term investors do not worry about volatility.
If volatility scares you, you can invest through Systematic Investment Plan (SIP). SIP not only you invest a small amount every month, but also helps you to take advantage of rupee cost averaging. When the market falls sharply, you can increase the quantum of your SIP to build wealth.
The present fall is an ideal opportunity to rebalance your portfolio. The right asset-allocation strategy can help you to build wealth effortlessly. After a sharp fall, the equities as an asset class have become undervalued. This is the best time to increase equity allocation and invest aggressively.
it is easy to fall in the fear trap and think of exiting investment when the portfolio is hit by volatility. Do not try to time the market or get carried away by the cheap stocks. Stocks have a tendency to rise and fall sharply. Many investors have lost a fortune chasing multi-bagger stocks. It is best to leave the investing to the fund managers who have experience as well as the expertise to analyze stocks.
Whatever the market levels, do not stop your SIP. This is the best time to build your portfolio. The benefits might not be evident immediately, but if you continue your investments, you will thank yourself when the market recovers. Remember worldwide the governments and central banks are doing everything to restore economic activity. As soon as the present situation stabilizes the market will be on the path to recovery.
Many investors try to predict the bottom of the market. Their wait often turns out to be endless. They lose plenty of opportunities and often end up in frustration. The present economic scenario of low-interest rate and low oil prices make equity markets highly attractive from a long term perspective. The present valuations are cheap compared to historical valuations and demand that investors remain invested.
It is important to protect one's portfolio, especially during volatile times. The present crisis may be resolved within a few quarters. If you have doubts, you should seek the professional advice of a qualified financial advisor.
Finally, it is important to pay attention to one's health too. During such times one should exercise restraint and practice social distancing. If possible, one should buy additional top-up insurance cover for self and loved ones. This will ensure complete peace of mind during testing times.