Equity Investment: Who should worry about market crash and how to deal with it

In case a person needs to take market risks to meet the goals, he/she should invest in multiple stocks in a phased manner to reduce the risks further.

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For small investors, investments through SIP in equity MFs provide a ready-made avenue to reduce the risk through diversification and phased investments.

Equity investments are subject to market risks and market fluctuations do impact the return of equity investors. So, one should never invest the money needed at a short notice during an unforeseen emergency or for meeting any short-term financial goal.

So, an investor may invest in equity the money that he/she may spare for the long term and in case of market crash, may wait for recovery to fulfill a long-term financial goal.

For this, a person should first do financial planning to identify how much money will be needed in how many years to fulfill respective long-term financial goals and invest accordingly to meet the goals by taking minimum financial risks.

In case a person needs to take market risks to meet the goals, he/she should invest in multiple stocks in a phased manner to reduce the risks further. For small investors, investments through systematic investment plan (SIP) in equity mutual funds (MFs) provide a ready-made avenue to reduce the risk through diversification and phased investments.

Ideally, an equity investor should remain unperturbed during market volatility and wait patiently to meet the long-term financial goals.

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Who should get worried?

But some investors need to act to protect their investments from a future market crash. Such investors are the persons –

Who are close to their financial goal

A person – who had started equity investment to meet a long-term financial goal – and is close to the goal should get worried about a market crash and should shift his/her investment money out of equity at a high market without waiting for the market to rise further. For example, a person who is about to retire or a person about to get his/her child admitted for higher education etc.

Who have already accumulated the required fund

If a person has already accumulated the fund needed to purchase an asset through equity investment, he/should take out the amount to buy the intended asset without waiting for the market to rise further. For example, a person who had started investing to buy a car or a house or other such a high-value asset. Staying invested out of greed may cost him/her the immediate opportunity to buy the asset, in case of a market crash.

How to deal with the fear of market crash

In case a person is close to his/her investment goal of retirement, child education etc, instead of liquidating the entire investment at one go at a rising market, he/she may take out money in phase manner to secure a part of investment against market crash, while taking advantage of market rally through part investment.

For example, a person close to retirement may take out the money needed in the first 3-5 years of retired life out of equity and move about half of the remaining money to debt, while leaving the rest of the money invested in equity.

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