What strategy should the Indian investors adopt during the war time?

After the COVID-19 pandemic, the Russia-Ukraine war has distressed several Indian investors in the stock market. There has been an upsurge in stock market volatility recently. Further, there is uncertainty surrounding the recovery of the Indian stock markets as crude oil hits multi-year highs. In such situations, the investors generally panic and react by redeeming their investments from the equity market. But as per experience, the stock markets always recover over time. However, it is not advisable to take an undesirable risk with your investments. Instead, you can follow an investment strategy that matches your risk tolerance to attain financial goals. 

Stock market reactions during the past crisis

If you see the Indian stock market’s history, you will notice that the market has always rebounded from adverse scenarios. It can be seen as an opportunity to gain wealth by staying invested in equity investments for some time. As per past experiences, those who invest in equities are lavishly rewarded during tough times. You can invest in stocks of fundamentally solid companies that have a good performance track record and have the potential to rebuild themselves and reach their pre-crisis valuation.

Long-term investment strategy

No one knows if the Russia-Ukraine war will end quickly, if it will rage on for a long time, or if more nations get involved. Investors with long-term financial goals can continue with their equity investments and accumulate more shares or mutual fund units at lower prices.

Diversification

Diversifying your portfolio is one of the best strategies to keep you afloat in an economic crisis. In addition to market-linked investments, you may allocate your investments to traditional assets like real estate, gold, bank deposits, etc. Diversification will balance the risk involved in one asset class by spreading your investment across asset classes.

The decision to switch investments

Due to the impact of geopolitical tensions on the stock market, you must remain focused on your investment goals. You may have to rebalance your portfolio to make sure it aligns with your financial goals. However, before investing, do your homework to identify apt investments based on your risk tolerance and wisely make investment decisions. 

Invest in SIP to avoid timing the stock

You can invest through small amounts in regular intervals in a mutual fund scheme through SIP. That will help you average your purchase cost, and minimum risk will be involved.

For any clarifications/feedback on the topic, don’t hesitate to contact the writer at namita.shah@cleartax.in.

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