Equity as an asset class is volatile. Here are some basic tips which can help you navigate through volatility in equity markets.
Often we hear people saying that equity is risky, and you can lose money if you invest in equity. The primary reason people say this is because equity as an asset class is volatile. “The fact is that volatility in equity investments is the prime reason why once can expect superior returns from the asset class in the long term. And at the same time, volatility is the reason why short-term investors suffer losses in equity,” says Vikash Agarwal, co-founder, CAGRfunds.
Here are some basic tips which can help you navigate through volatility in equity markets:
Link your investments to financial goals: Equity an asset class can help us reach our long-term financial goals and once we realize that short-term volatility in equity is irrelevant in the long term, we will not be effected by the same. Linking our investments to our financial goals is an easy way to practice the same.
Do not speculate and take leveraged positions: Most of the investors burn their fingers in the equity market because either they are looking for short-term gains or they take leveraged positions to make a quick buck. “All such actions can be disastrous once the markets take a U turn. Avoiding such investment decisions can help them make the most out of the market in the long run,” says Agarwal.
Do not see your portfolio on a daily basis: One should avoid screening one’s portfolio on a daily basis and should only review the portfolio once in 6 months or in a year.
Manage your asset allocation diligently: This is one of the most important investing decisions which is not followed by most investors. Investors should periodically review their asset allocation and stick to the target asset allocation according to their risk appetite.
Invest via Systematic Investment Plan (SIP): We all know that stock market movements are not linear and we will have to face volatility in our equity investments. “Systematic Investment Plan (SIP) is the best way to take the advantage of this volatility in our favour. It will help us to invest across the market cycles and ensure we get the best average,” says Agarwal.
Do not try to time the market: A lot of investors get driven by their urge to time the market, especially when the market is on a downwards trend. While one might get lucky at this, such actions on a repeated basis are likely to turn all gains into losses.