The past few months have been what can be called a testing period for the stock markets. The upcoming elections and geopolitical concerns did stress all the citizens and especially the stock market players for a while.
But, with the markets gearing back again, times are looking better and there seems to be a return in the bull-sentiment.
While people seem to be in a mood to cheer, I always marvel at the loss of opportunity they faced when the markets were not at a high.
One of my core beliefs has been that the crisis is always good for the markets in many ways. Ideas and stocks get tested and we are able to find whether they are really worth any good at all.
Volatility shocks and surprises can be the best things in the world (if you are able to make the most of them that is!).
Look at what happened over the last two decades in every Indian business. Every crisis, every squeeze on the economy has resulted in a badly run business getting exposed and a well-run robust business to get stronger.
All said and done, I can understand the investment inertia that sets in when the stock market fluctuates. But, holding too much cash or postponing your investments can also mean that, your savings are not working hard enough for you and the returns in your portfolio could be lower than what you had imagined them to be.
Therefore, I will recommend a very simple strategy to apply to your investments when the markets are not doing oh-so-great.
This will keep your goals in line with your asset-allocation strategy.
1. Rebalancing as per time horizon:
Select investments based on the time-horizons of your goals, irrespective of which investment is doing well currently. Watch out for the effect of the run-up on the one-asset class on your portfolio.
If the equity runs up the proportion of your total portfolio in this asset class will also inflate and make it riskier. Rebalance your portfolio periodically and make sure that it continues to reflect your preferences for risk and return.
2. Maintain discipline:
Moving money across different asset classes is not a good idea. If it backfires then you might not be able to meet your goals? Quite often when we move around our money, we end up incurring a minor loss and we are not able to replenish it.
And the invasion ends up affecting our long-term funds and we find ourselves at a stage where we can neither borrow money nor can fund our self through any other source of income.
Therefore, the way I see it is that, keep it simple and maintain a consistent discipline towards your investment.
3. Be driven by your goals:
Your savings and investment activity should always be driven by your goals. And mistakes on that front could derail your plan. But, if you know what to watch out for, then you can take precautions and avoid them as far as possible.
Automating your investments and inculcating the practice of periodically monitoring and rebalancing your portfolio can go a long way.
In conclusion, I will recommend that in volatile markets, if you are unsure about managing your portfolio then it is better to use the services of a financial advisor.
While there is a cost attached to it, in a long haul the benefits will far outweigh the costs.
(The author is Head, Personal Wealth Advisory, Edelweiss)
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.