The title of this article has been taken from another article shared with me by one of my close friends asking what to do.
The kind of stock market volatility we are witnessing these days with so much of negativity we see and hear around, anyone would agree to the statement that Yes Stock markets are on the Verge of Crash.
We are actually experiencing a slowdown in the economy.
Investors are doubtful on the Company Auditors’ Credibility after Seeing Manpasand and Vakrangee issue.
They are losing Trust on the Credit rating agencies after IL&FS debacle, and now Hyperactive agencies doing the downgrading of different companies every now and then. ILFS scene was talked about as a “Lehman Moment of India”
NBFC Crisis has been worrisome which has taken many Debt mutual funds for a ride and hit many investors hard-earned money.
The economic slowdown is a Big Reality. Not only India the whole world is experiencing a slowdown. Trade tensions are one of the bigger reasons for it. Today only, someone shared one article with me mentioning Deutsche Bank melting down.
These days negative titles are enough to attract the eyeballs of readers. No matter what the content is.
No. I am not mentioning this article, please. 🙂
Job Losses have become the Norm. Auto sales are going down every quarter and Companies are halting their production. Consumption market is slow, Real estate is in a bad state for the last many years.
With all this when you see, Government not announcing any immediate measure to ease the pain and top it up with some taxation on FPIs which results into Stock markets going down every day, increases the disappointment.
You must be thinking, yes this is it. So, when reasons are clear why not to worry and concern about the Investments. Slowdown, Frauds, Recession, Job losses are a perfect recipe of a Stock Market Crash.
I completely agree with this. I am also witnessing Slow to No growth in my client’s portfolio for the past 2 years. Broad markets are weak and only a few top stocks are doing well which creates an illusion among investors that Index is performing but not their portfolio. Read: Index funds in India)
So, the question again zeroed down to the same as my friend asked what to do in this difficult situation? Should you withdraw all your investments?
Not only him I keep getting daily queries on my blog regarding this. Investors clearly sound Panicky on Social Media.
Actually, there is a very simple answer to this Confusing situation, which though is difficult to implement but is the sure-shot solution.
SET THE STRUCTURE. FOLLOW THE PROCESS
Financial Planning is not about making or redeeming investments, It is about putting you into a structured process to achieve your goals, so you can focus on the things that matter.
Now in today’s kind of economic situation what matters most is that your Income and savings should not stop. Remember the mantra of good Investment is Buying Low and Sell High.
So now when Markets are low, you should be happy that now you can accumulate more shares/Mutual funds units and earn more when markets turn upwards. So, first things first, keep saving. Don’t withdraw
But, to keep doing regular savings you have to have a regular source of income. I know that you already have. But if India and world are really into a slowdown then you never know what your employer may think and may have plans for the future.
Protect your career, by upgrading yourself and staying one step ahead in the work so if your employer ever thinks of retrenchment in the company, your name should come in the last. Watching Markets every now and then, is a Waste of Time.
Still, you never know. What future has in its store. Even after doing best of efforts sometimes you don’t win. So to face that kind of state with the confidence you have to have a decent emergency fund with you. Increase the Emergency fund to at least a year of expenses (including the EMIs). It’s Always Wise to be prepared.
Along with this, you have to take good care of your health. Now, you may say, how does this is connected to Your Investments.
See, major health problems have the potential to suck up your savings. Health Insurance does support you, but what if there is any income loss due to your prolonged sickness.
If you are not following a structure, at this stage you tend to withdraw your savings. And you may justify your decision by saying that when the investment is not performing, it’s better to come out of it. But the actual reason for this would be the mismanagement of finances and health.
Am I saying that you should not at all withdraw your investments and stay invested?
Well, the answer to this is YES and NO both.
Yes, if you still have an investment horizon of 5 years and above. And NO if your goal is nearby.
You should come out of Equity Investments and secure the money for your goal by investing in some short-term debt or Fixed deposit kind of product. Do not wait for some kind of miracle to happen soon. Even if it is expected (through some media news, or a friend’s viewpoint), it is not wise to wait for that. What if it doesn’t?
This slowdown and Sharp fall in Investment markets give you an opportunity to relook at your Portfolio and do the Asset Allocation Rebalancing. Do not ignore the debt investments in the portfolio. Yes, you have seen some credit defaults in the recent past, but that is the nature of investments. Returns come along with some risks.
To come out of slowdown government and Reserve banks generally cuts down the interest rates to give a boost to the economy, where your debt investments should perform well. Sometimes it’s a domestic issue and the outer world is doing good, so having International allocation also helps.
In the bearish market sentiments, you could find umpteen reasons for Stock market to fall, and when things are going well, one tends to ignore all visible risks.
Things don’t remain the same always. You have to just act as a wise investor and make the best of both times. Boom and Gloom, both are realities.
Sticking to the process will support you in your journey. Follow a structured approach and enjoy the market movements.
Due to the condition of the economy, the stock market in India is in a very volatile position. However, if investors must learn how to take advantage of the crashing situation too. The rise of the market is always followed by a fall somewhere. You have to learn to treat the collapse of the market positively also. Learn how to take advantage of losses also.
Large caps are for 3 years ,mid for 5 years and small caps for longer tenure ,so as our goal comes closer how should we switch our investment.and finally to debt funds
All my investment are in red only debt are in green which I have done for short term needs and I don’t care for instability as of now ,am I going right way.