You must have heard a lot of people saying that everyone makes money in a bull market and that’s exactly what happened in the post pandemic rally across the globe. Now the situation is different. Year 2022 has been very testing for equity and mutual fund investors.
We started the year on a promising note with pandemic impact fading away and markets opening up. However, geopolitics soon took the centre stage and we had the Ukraine crisis impacting the whole world by the end of Feb 2022. Today, countries across the world are in multiple problems impacting economic growth and investments world over. Commodity prices, especially crude oil, has skyrocketed and there are severe demand-supply issues. This has resulted into record breaking inflation world over and central banks across the world are increasing interest rates to curb inflation and their focus has suddenly shifted from growth.
In the mid of all this, the equity market euphoria has fizzled out and many investors are sitting on big losses now. With uncertainly still around us, investors are looking for ways to better manage their investment portfolio. However, there is no single formula for all as every investor has different investment style and their financial position is also different.
Investor with strong earning potential
If you are an investor who earns handsomely every month and has clear visibility of your earnings then you can choose to not to change your existing investment in equity and mutual funds. However, you can rejig your equity portfolio by moving a part of your invested amount into companies which have given good financial results in last 2-3 quarters and where the management has shown confidence to grow even in this tough market conditions. You can also hedge your existing investment to an extent to cover possible loss if the equity market keeps falling.
Since, you will have sizeable amount available to you on monthly basis from your current earnings, you can choose to put a part of that money in debt instruments like secured NCDs, bonds and balanced mutuals funds. Remaining part of your monthly savings can be parked in liquid funds which you can use to invest in stocks when valuation become even more attractive.
Investors with low earning visibility but strong financial back up
You may not have strong earnings or you may be earning good enough but do not have a clear visibility to earn the same in future. However, you already have a good investment portfolio and assets in place and have a strong emergency fund as well. In such a case you can still stay invested in stocks and mutual funds with some rejig to ensure better performance when market condition improves.
However, invest your savings from current earnings into debt instruments for next one year as rising interest rates are going to give you better returns in some of the debt instruments as well as will also help in protecting your capital.
Investors with low earning feasibility and no financial back up
If you are not sure of your future earnings, it's time to rejig your investment strategy specially if high percentage of your investment is into equity or equity linked instruments. First, stop further investment into equity or equity mutual funds howsoever lucrative the market looks to you. Move a good percentage of your investment, atleast 20-30%, into debt instruments with low risks and put your savings from current earnings into emergency fund.
Investors who have just started investing
Investor who has just started their investment journey should be watchful of the prevailing market situation and invest wisely into various investment instruments. Just not go by the saying that young investors should take more risk blindly. If you belong to a family which can support you financially whenever required you can think of investing a part of your money into stocks or mutual funds but do not put all the money in one go. Balance amount you should invest in debt instruments which fetch you returns higher than prevailing inflation rate. Remember that the golden rule of investment is protecting your capital so that you stay there long in the market and create wealth.
For investors who do not have enough financial back from their family, it would be better if they avoid investing in stocks for a while and rather build their capital and emergency fund and invest in debt instruments. Market will offer many opportunities to make money so don’t be in rush to invest all your savings now.
Investor with multiple earning members in the family
If your spouse also has good earnings and you invest jointly then you may have a higher risk-taking ability which means you can afford to stay invested stocks and mutual funds in the current market situation also. However, you need to decide on what you do with your monthly saving based on your upcoming financial obligations like buying a home, increasing the family, child education, going for a foreign trip etc.
Your situation as an investor can be any of the above or may be entirely unique one so should be your portfolio management strategy. Don’t go by what your friends and colleagues are doing or suggesting. Invest your money after carefully examining your financial situation. If you are still not sure it is better to consult a trusted advisor (preferably a fee-only advisor) and then act as per their advice.
Mukesh Vijayvergia, Founder of Nishkaera Financial Advisory and Wealth Management Private Limited