A financial planner’s guide for getting through the market volatility
While it is true that investing in the market may help you to accumulate wealth, it is important to remember that the market may not perform the same all the time. One time, the market will be performing well and the other time it might not be doing so well. Hence, investing in the market comes with a lot of risks and you need to remember that so that you don’t make reckless decisions. So, it is always important for the investor to invest in investment plans that will provide you with optimum returns.
In simple terms, market volatility can be defined as nothing but market movement due to various factors, which are not under the investors’ control. Market volatility is something that usually comes with equity-linked investments. However, one shouldn’t be afraid of market volatility, as there are various strategies to overcome market volatility. Listed below are some of the strategies you can take to get through a volatile market:
- Please do not pause or stop your SIP investments:
While it is understandable that one may be discouraged by a bear market, It is not a wise move to stop or pause your systematic investment plan (SIP) investments just because the market has entered a bearish trend. You need to understand that market movement is part and parcel of investments, and you have to brace yourself for it. If you continue your SIP when the markets are down, you purchase more fund units as their price falls. You get to enjoy the benefit of it when the markets start gaining. If you stop your SIP, you will miss out on the opportunity to purchase the fund units at a lower cost, thus giving up on the opportunity to realise gains in the long run. Therefore, instead of looking at bearish markets as a negative factor, you must pick up more fund units by continuing your SIP. You may also consider bumping up the ticket size of your SIP.
- Don’t take impulsive decisions:
It is important to remember that during a bear phase, impulsive decisions are the last thing that one should go for. Your investment decisions should only be based on your investment objectives. You have to trust the market and the fundamentals of the companies you have invested in and do not give room for knee-jerk reactions. The bullish or bearish market trends are never permanent and there will always be fluctuations. You need to have trust in your investments and stay invested for the long term. It might be okay to consider redeeming your holdings only if you feel that your investment objectives are not being served. If needed, you may consult a financial advisor who would help you redraw your investments such that your objectives are met at the levels of risks you are willing to take.
- Try diversifying your portfolio:
Concentrating your investment on a particular sector or stock is the last thing you should do when the markets have gone volatile. When you have concentrated your investments, there are high chances that your losses would be pronounced when the markets are down. To avoid that, you could consider portfolio diversification. Through diversification, your investments are spread across various stocks and sectors. However, you should note that you don’t diversify your portfolio too much as it may become tedious to track all your investments at once.
- Please have a long-term investment horizon:
Having a long-term investment horizon would address most of your concerns related to the markets being volatile. If you are considering investment as a possible avenue for earning extra revenue, it is advisable to have an investment horizon of longer than five years. Investing for a longer investment tenure will let your investments go through business and market cycles, which helps your investment to provide stable returns in the long run.
Therefore, if you are considering investing in the market you need to remember that market volatility is something that will remain constant. Having a longer investment horizon and spreading your investments across different market sectors and asset classes will help you ride the market volatility and earn good returns in the long run.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.