The Indian market has been experiencing its worst selloff for the first time in over a decade, and investors are on the run to secure their investments amid the market downturn caused by the Coronavirus pandemic. Also, with BSE Sensex having plunged by over 30% in the last three months, Indian investors are on the lookout for options to survive through this challenging phase. Here are a few principles if followed right can help investors manoeuvre through the bear market and protect their investment portfolio.
Dos
1. Create a Contingency Fund
A full-blown bear market generally results in severe economic downturns, which eventually end up wreaking havoc on the investors’ finances. Hence, investors are advised to create an adequate financial cushion before making any changes to their investment portfolio. Also, having a contingency fund will keep you away from dipping into your investments in the worst-case scenario.
2. Keep Your War Chest Ready
Investors are generally hesitant when it comes to investing during a bear market. What investors have failed to realise is that every time the market has been through a bear phase, it has recovered fully over time. And by the time investors realise this, the bus has already left the stop. This is an opportunity that shows up once in a decade. Have your reserve funds ready for investing and witness your investments reap benefits for you once the market recovers.
3. Stick to the fundamentals
Unlike the global financial crisis in 2008, the ongoing market crash is not due to economic factors. Generally, well-established companies endure such hard times without much impact. Despite the hurdles, these businesses ensure that they can withstand the turbulence caused by the bearish market and bounce back completely. Small and newly established companies, on the other hand, are the ones who get rocked the most in such crisis. If not managed properly, they end up sinking where large businesses were able to plough through. Hence, investors are advised to stick to reliable and fundamentally strong names and avoid aggressive bets during a bear market.
Also Read: Don’t Let Pandemic Come in Your Way of Achieving Goals
Don’ts
1. Don’t time your entry
While we are not sure when the current situation will hit bottom, investors are advised no to time their entry anticipating to catch the market bottom. Also, you need not invest all your reserve funds in one shot. Investors can consider spreading their entries into the market in a staggered manner spread over a few months. This will help investors balance their investment portfolio more efficiently.
2. Now is not the time to review your funds
During a full-blown bear market, most equity funds seem like a bad idea as the value takes a beating every time you check your portfolio. Also, gold, being a safe-haven asset, can seem like a good investment decision during such a crisis. This might tempt investors to pull out their investments from equities and redirect them towards commodities such as gold which usually performs well during market downturns. This might significantly affect the portfolio value once the market recovers from the ongoing pandemic. Hence, investors are advised to make changes only from an asset allocation perspective and not for the lack of return from your investment.
3. Don’t revise your investment strategy
A bear market is not the time to try a new investment strategy. However, most of the investors shift their strategy during such scenarios. They abandon their investing principles which they have held on to for so many years and immediately begin diversifying to the extreme. This can end up undermining their long term investment strategy, eventually coming in their way of achieving their long term financial goals.
For any clarifications/feedback on the topic, please contact the writer at viswanathan.v@cleartax.in
Abbreviation is the name of the game – SIP, NPS, ELSS, KTM, and OMR.
Vishnu is the cat that got too curious. He can normally be found staring at market charts or drooling over his Real Madrid curios.
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