Mastering the investment game requires expertise and experience. It is during dire market conditions that one realises whether they are really good at managing their risks and more importantly, whether they can make the most of opportunities that arise during these uncertain times.
However, it is easier said than done. Investing is a calculative set of steps taken to strengthen your money. To ensure that temporary incidents or unforeseen macro events do not make an unwanted dent in your portfolio, you must resort to taking the following necessary steps.
Focus on asset allocation
It is not the first time that the global market is witnessing a turmoil. Remember how the Covid-19 pandemic caused many to redeem their assets and withdraw their money from the stock market? But this led to many missing the train when the market made a quick recovery in the second half of 2020. Those who continued with their investments in 2020 or made use of reduced share prices or lower NAVs in mutual fund investments found it easy to gain from the markets when businesses opened and the markets sharply rebounded. Most investors park their funds in investments during rising markets, not realising how their profits will be impacted due to high share valuations.
Ignore the noise
Remember the euphoria in 2021 when investors found it difficult to ignore IPOs? New companies backed by global giants and funded by venture capitalists entered the markets. Investors suddenly overrode their risk appetite and bought stocks in these companies hoping to earn good returns. And then,, the bubble burst; many companies booked losses. Investors and shareholders lost their money. Many realised the folly of not looking into these companies’ fundamentals before putting in their money while others blamed it on these companies’ faulty management that could not ring in the much-needed liquidity in their businesses.
The lesson was learnt the hard way. Cut off unnecessary noise, do not pay attention to the hype and get rid of the euphoria surrounding many businesses. Pay attention to only those investments backed by sound management and enough potential to grow with time. If you are still not sure of where to invest, rely on the services of a professional fund manager or a personal finance analyst who knows well how to separate the grains from the chaff.
Appreciate the need to diversify
You might want to consider diversifying your portfolio to minimise the impact of repetitive market blows. First, look at alternative investment options like exchange-traded funds (ETFs) that promise liquidity along with growth.
Do not ignore gold for the sheen and shine of this yellow metal will hedge your investments against inflation. As the old adage goes, “When everything fails, gold shines through”. Look beyond domestic stocks and funds.
Park some money in foreign stocks or funds investing in foreign stocks. This will ensure you the benefit of global diversification. There is no way that you can ignore the strength of the dollar.
A few passive funds in your investment portfolio will give you much-needed peace as you do not have to worry about how your stocks and funds are behaving. Passive funds rely on market movement. So, when the market grows, these funds also grow with time.
Rely on insurance too. Having enough term insurance coverage means that you are leaving behind enough to take care of your loved ones’ future in case of an untimely death.
Do not ignore health insurance as this will take care of your family’s medical bills as and when the need arises. Adequate health insurance not only protects the portfolio from unexpected outflows and drops during emergencies but also eliminates the risk of being forced to liquidate at the worst possible time.
Inculcate discipline in savings and investments
There are two ways of approaching your investments. One way is that you time the market in a way that you estimate the entry and exit points and then decide when and how much to invest in every phase. The other way is to put in your money through systematic investment plans (SIPs). This will inculcate the much-needed discipline into your savings and investments. This also means that your investments continue irrespective of whether the market is going through extreme highs or lows. There is another way to look at how SIP investments will benefit you in the long run. Continuing SIPs even during market corrections provide a lower entry point and improve averages. However, any investor who discontinues SIPs due to concerns about further corrections will miss out on the key benefit of accumulating more units at a lower valuation.
Learn from your mistakes
Often, the greatest lessons are learned during the worst of times and from the worst of mistakes. The stock market mirrors life in some way as it tests you at every step and delivers results accordingly. It’s okay to make mistakes; it’s just not okay to repeat them.
One of the greatest learnings from the stock market is that you must never be emotionally attached to any stock. A long-term investment approach must not translate to “Buy and Forget”. The idea is to invest at the right valuation and to check if the stock is performing as per expectations. Validate your decision by verifying if the company is performing as per your anticipation or if the stock has attained its full potential. Sell off the stock if you find no scope beyond a certain point or if you have reason to feel that you had made a wrong decision regarding its purchase.
Second, learn from what people say or share but your buying and selling decisions must never be guided by tips on social media handles.
Diversification helps, but only up to a certain point. There is no point in buying 50 different stocks hoping that some of them will work in your favour and help you to create wealth. Diversify your stock investments depending on the industry exposure you are seeking and your financial goals. Check what kind of stock purchase would provide you with financial security in the future.
Do not put your money in investments that you do not understand. Ornately sounding names do not help; ultimately, it all boils down to the business they are in. Do not dabble in trades that you are unable to decipher.
News of profits may prompt you to invest money in instruments that you may have ignored to date. The fear of missing out causes many to make grievous mistakes during investing.
Review your actions
You cannot rectify the mistakes that you have made, so it is best to review them and avoid them in future. Reviewing and reconsidering is the best way to continue your stride in a stock market.
If you are still naïve or lack the confidence to sail through the markets, it is best to seek help from a professional financial analyst who will chalk your investments according to your plans.