“For the investor who knows what he is doing, volatility creates an opportunity.” – John Train
The stock market has been a roller coaster ride for some time now. At this volatility you must be wondering whether to invest or wait for the market to settle down. Smart investing is all about converting volatility into an opportunity and further strengthening your portfolio by investing and making necessary changes.
Volatility is the basic nature stock market. Historically also we have seen market falling to situations like wars, pandemics, terrorist attacks, financial crisis etc and then recovered.
And that is why, equity investing is for long term. The one thing that remained constant during these times was growth in the equity markets. So even if some investors had invested at the peak, say, before global financial crisis or before the pandemic, their wealth would be compounded over time.
And hence instead of timing the market, time your investments by doing regular systematic investments through SIPs and use corrections to deploy idle or additional cash.
Don’t’ exit from equity–
Equity markets moves at its own pace and you as an investor should move according to your financial planning/goals, despite of market movement. Short term volatility should not make you worry and think about exiting from equities. Staying invested in the market will help you take the advantage of the rally that usually follows.
For example, when Covid hit us, market started falling sharply and many investors withdrew their money from equities. But when market rally began, market rewarded those who remained invested.
Do small systematic investments (SIPs/STPs) rather than going All in–
As market is falling, you might have thought of buying the dip. If you do that, you are assuming market will not fall any further. There is no way to predict that. So, make sure you bring down your cost of investment by buying small systematic way than going all in within one day. Use a staggered approach to invest idle cash as markets are likely to remain volatile for a short term.
Maintain strict asset allocation–
If you are investing according to your goal, then do not diverge from that, unless you have achieved your goal. So the short term market volatility should not affect you or your financial plan. Events like war, pandemic can result in sharp drop in equities. But these kind of events are short lived and can create market volatility. These events are right time to invest. And during such times investors should focus on asset allocation and build long term portfolios. Markets are generally derivatives of fundamentals and if fundamentals are intact, timing the market will not add any additional value over long term investing.
Do a portfolio review–
During volatile times it is important to analyze the portfolio’s health and check to see if you need to exit any specific stock or a mutual fund or do you need to top up your investments. Also, it is important to check other asset classes like gold, fixed income, real estate etc. and see if allocation to other classes needs further investment or shifting.
Irrespective of market levels, don’t act sentimentally or emotionally. Take informed decisions. Make changes as per your goals, risk appetite and investment horizon. Don’t forget in the long term, market rewards disciplined and patient investors.
If all this is too confusing, then give us an opportunity to help you optimize your portfolio.
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About Us: Malpani Investments specializes in Investment Advisory and Planning. Our Mission is to provide financial freedom to our clients by understanding their financial goals and helping them plan, save, invest and be disciplined, so that they can stop worrying about money and lead a happy and healthy life. We help them understand personal finance in order to eliminate the gap between where they are now financially and where they want to be. Helping them with a suitable investment decision so that they can give more time to their family, health and life aspirations. [email protected] / +91-7738637572