Predictions are futile. This is the lesson that the past three years at the bourses have taught us. In fact, we?ve learned this so well that soothsayers are now looked at with some amount of disdain. Whatever was least expected, has happened. Experts of all sorts have been proven wrong, and frankly, it is no one?s fault. Anyone who hails from the financial world would have some opinion upon the things taking place. Some of these opinions turn out to be right, some wrong. But what has been interesting is the gravity with which all predictions have fallen flat.
Towards the end of 2007, the equity markets were on an unprecedented high. Levels after levels were being breached, but the general notion was that 2008 would be steadier and duller. The markets were expected to float around the 20k level, but they crashed, and how! Today, most of us blame the global financial crisis for this crash, but the truth is that the reasons behind the crash in January 2008 were purely internal. The global financial crisis took place much later in the year. And then when the markets were expected to stay down, a revival began in March 2009. The rest of the year has seen recovery at a speed that was least expected. This story of unexpected happenings is not limited to the equity markets alone. Debt has seen its share of gyrations as well. While short-term debt was steady, long-term debt had a roller coaster ride. RBI unleashed a glut of lower-priced rupees towards the end of 2008 in an attempt to stimulate the economy. This resulted in longer-term debt multiplying in value and a number of medium-term debt funds gaining over 20 per cent in a couple of months. But after that, in 2009, most medium-term debt funds have registered marginal annual gains of 1-2 per cent. The rate-sensitive government securities funds have reported average losses of 4.5 per cent, with about a fourth of these funds have lost more than 10 per cent in 2009.
None of this was expected. Hence, I?m going to refrain from making any predictions for 2010. I?ve never really made any predictions anyway, and this is surely not the time to begin. But what I can do instead, and have done often, is put forth an investment strategy. This investment strategy is one that is apt for all times, bear phases, bull runs, et al. Adapting and following this simple strategy is all you need to do survive and be financially stable.
This is what you?ve to do: take a look at where in life you are right now, take into account your savings and figure out how much of them you would need in the next 5-7 years. This would include an emergency amount and expenses like weddings, education, down payments for a house or car. The amount you would require to fulfill these expenses should be invested in debt ? PPF or short-term debt funds. Invest the rest of your savings in 4-5 diversified equity funds with a good performance record. These investments should be done via SIPs, and shouldn?t be stopped regardless of the market situation.
It?s as simple as that. If you follow this strategy then I can make one prediction that will surely come true ? you?ll be financially stable and generating wealth.
?Author is CEO of Value Research