When markets become volatile, a lot of people try to guess when they will bottom out. In the meantime, they often park their investments in cash. But just as it is difficult to spot a declining market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of their returns.
By missing just a few of the stock market’s best single day advances, your overall potential returns could reduce dramatically.
India’s economic fundamentals remain strong and many global analysts expect India to emerge as one of the largest economies over the coming decades. This means that investments in well-managed companies are likely to deliver superior risk-adjusted returns over the long term.
Most people are quick to agree that volatile markets present buying opportunities with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult.
Systematic investing can help reduce anxiety about the investment process. Simply put, systematic investment plans using rupee-cost averaging, means committing a fixed amount of money at regular intervals to an investment. You buy more units when prices are low and fewer units when prices are high, and over a period of time, your average cost per unit is likely to be less than the average price per unit. It makes you buy fewer units when the price is high and more units when the price is low, thereby averaging out your cost, giving you the same discipline as investment professionals. While systematic investing does not assure you of a profit, it is known to have worked well for millions of investors through out the world.
Now maybe a great time for checkup:
Is your portfolio as diversified as you think it is? Meet your financial advisor to find out. Your portfolio’s weightings in different asset classes may shift over time as one investment performs better or worse than another. Together with your advisor, you should re-examine your portfolio to see if you are properly diversified. You can also determine whether your current portfolio mix is still a suitable match with your goals and risk tolerance.
The strong growth in the Indian economy and markets has resulted in plethora of information from media outlets dedicated to reporting market news. While this helps investors to keep abreast of developments, following movements on a day-to-day basis could result in a very short-term outlook. To put your investment plan in a longer term perspective and bolster your confidence, you may want to see how portfolios have performed.
Having a clear long-term asset allocation plan in line with your investment objective and risk profile is far more important than chasing yesterday’s winners and focusing on short-term trends.
Equities deliver over the long term:
While sentiment might increase volatility over the near-term, over a period of time stocks tend to reflect the underlying fundamentals. Despite the expected moderation, Indian economy will remain one of the fastest growing economies in the world. As the holding period increase, the impact of near-term volatility reduces.
There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long term plan and a well diversified portfolio across asset classes. But sticking to these fundamental beliefs is sometimes easier said than done. When put to the test during volatile markets, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals.