There is nothing in this world that remains constant at all times. Similarly the financial market too goes through ups and downs. These uncertainties are a big cause of concern for those who are not completely familiar with the movements in the stock market. Since India started opening up its economies to the world in 1991 the financial markets have been through many phases.
Investors fail to realise that all asset classes go through both good cycles and bad cycles and they often make the mistake of investing in an asset class that has given them the best near term results.
There are five investment strategies that can protect you from the hurdles and help you keep your eye on the big picture:
1. Stay calm and get professional advice
Avoid making quick moves on your own, as tempting as it may be. Meet your financial advisor instead and make an informed decision. Avoid making decisions on the basis of a single event since that is not necessarily a permanent move in the market. Make it a point to re-examine your risk bearing capacity from time to time so that your goals remain a priority even in uncertain times.
2. Consider Conservative Funds
Diversification will always cushion you in uncertain times since all stocks and sectors do not imitate each others’ performances at all times. Consider selecting a mix of mutual funds that will invest in stocks and bonds. Also keeping an appropriate amount in the cash equivalent mutual funds is always helpful when small amounts of cash are required. Always remember, diversification does not guarantee a profit but it does help in reducing the effects of volatility.
3. Invest regularly
Make sure you never make your decisions under emotional circumstances or in a hurry, without considering every aspect of every situation. This can be in any market condition. Reacting aggressively and investing large sums of money at the hint of making profit or extracting everything at the sight of making a loss is not the right strategy to adopt. Most people forget the basic principle that a falling market is a good opportunity to buy and a peaking market is a good opportunity to sell. Often, people do the exact opposite of this. Markets always rebound and grow in time. If your time horizon permits, buying stock at the bottom will give you time to ride through the rebound.
4. Go for the Tried and Tested
Always avoid focussing your investments in speculative ventures just to make up for earlier losses. Speculative ventures come with higher risks of losing more money than making profits. In challenging times, investors should always invest in blue-chip stocks and reputed companies that have shown long resilience at bearing economic storms. Avoid the temptation of making up earlier losses in one investment decision. It is nice to think that something of that sort may happen, but that is best left to the story books.
5. Avoid frequent market exits and entries
It is extremely difficult to time your more perfectly in sync with the market so as to exit at the peak and enter at the bottom. Thus, it is important to avoid exiting and entering the market frequently in order to prevent further loss in one wrong entry/exit. Investors typically end up buying high and selling low. Even more so in a bear market which is not a straight decline in price but a jagged line with bouts of price rises and consequent declines that get confusing to spot.
When such situations of great uncertainties present themselves, the best offense is defence. Be as well informed as possible; remain updated with newspapers and news segments. Analyze which sectors are performing better than the others or at least presenting a decent resistance to the falling markets. Keep track of the factors that are responsible for the slowing down of markets and follow them as and when they change. Regardless of the kind of strategy you apply, you cannot go wrong if your plan is long-term in nature because eventually the markets will rebound and grow when things reverse. Patience is virtue in times of economic instability. Therefore, make sure you do not make a hasty decision that could cost you your savings.