This time is different. No, I am not saying anything about Investment markets which finds its own reason to rise and fall, but it’s about the Investor’s behavior.
Unlike 2008, this time I did not receive any panic calls yet. In fact, People are sounding quite excited in this fall, and are asking to Invest more. For this they like to compromise with all the risk cover they have in the form of Emergency fund, Debt allocation (In overall Asset Allocation), all liquid/ultrashort term funds kept for near term goals, etc.
This type of behavior is also not wise and very risky in investment management. Fear or Greed / Panic or Excitement both are not good for investments. So, my advice has always been – Stick to the process.
In fact, they want to invest more because they have liquid money and funds available with them, they are not panicking because their near term goals are clearly achievable, they have enough emergency fund to take care of 3-6 months of their expenses, all have required insurances at the place, and are following the asset allocation wisely…so having a good and strong foundation for the long term investments.
And for all this Panic and Excitement attacks, I am there to tame the behavior.
One of my Friend’s father called me and said – “Beta, mera to paisa doob gya”.
His bank deposits were in Yes bank, and most of the investments were in equity-oriented funds. So, it was quite normal for him to panic.
My reply to him was, Uncle “Agar usko tairna aata hai to don’t worry abhi dooba nahi hai float kar raha hai (if it knows how to swim then don’t worry it is not drowned, and still floating). He sounded confused by my reply. And wanted me to elaborate
Uncle since you used the “dooba” word so I thought to link it to the “swimming” analogy. Otherwise what I meant was, that when you don’t understand the investment markets then you should not have put your money into it, and if you know how it operates then don’t worry things will recover once this panic settles down. This too shall pass.
So, paise ko tairna kaise Sikhaya jaye beta (How to make money learn swimming) …uncle was sounding a bit sarcastic here. (Also Read: How Prepared are you for Stock Market fall?)
Its a very simple uncle, the way anyone learns swimming…Only 5 mantras
Know, Learn and Understand the theories first. You have to give time to it. You just can’t say that you watch CNBC, read business papers, are part of some WhatsApp or Facebook group or follow some blog to learn about money management. My Book Art of being good with Money may help in building a good Investment Behavior (Click to have your copy)
Take all the Required Precautions, and follow the safety rules Like Don’t Put all the eggs in one basket, don’t put the money meant for near term goals into equity, even long-term investments should be well-diversified and properly allocated. Have a decent emergency fund and required Insurances at the place.
Get comfortable in the water (Investments), Don’t Panic or be over-excited with market movements: They say you should not start out swimming in moving water. Investing in equity is like swimming in an ocean or river, where you’ll need to be more aware of the motion of the water, and only experienced swimmer (Investor) should try that. If you are novice and try to learn the things, you should better start with some low volatile investments like Balanced advantage funds or conservative debt funds.
Have goals: You should know why you want to make investments (learn swimming). If the goal is not to cross the English Channel then better to learn and do it in a controlled environment.
Follow the Instructor: You have to have some professional by your side if you are not a finance background person. And even if you are, it is important to know that everyone is emotional towards their money. Money management is 80% behavior and 20% numbers. So, you may go quite far looking at the clear water or may come out soon experiencing a troubling situation. Follow the rules and instructions to be a better swimmer (Investor)
And one last thing
If you are just investing for fun with no goals, no direction, then better not to start in this Storm like situation. Let things settle down and then try your luck.
Follow the rules – Stay in the process – Stay safe
So, does that mean we should not worry about our investments? Uncle asked.
Well, first thing, there is a difference in worrying and panicking. Though both are not good but still worrying is less dangerous. Your worry should lead you to assess the situation, and review the portfolio and take action for your betterment. Review the Emergency fund, Rebalance the Asset Allocation, and stay calm.
And do make your money learn to swim, so you don’t worry next time by seeing such kind of market volatility.