While investors are optimistic about markets in 2021 with a vaccine being expected to launch this year, predicting how the markets will move in 2021 is difficult.
Long-term investors don’t get ruffled with market volatility since markets tend to average out over time.
The stock market is on a high. The Nifty 50 and Sensex are up by nearly 16 per cent over the last 12 months and are near their all-time-high levels. Some of the individual stocks have gained a lot more over the same period. Since the lows of March 2020, the leading indices are up by nearly 90 per cent till date. The going is good as long as it lasts. With valuations riding high and the economy not yet out-of-woods, the situation may take a quick reversal at any point in time. On the other hand, the trend may continue further as market movement is highly unpredictable.
Also, expecting the stock market to be a one-way street is not the right approach. Dips in the equity market is inherent to the nature of equity as an asset class. However, over the long term, the drift has been seen to be upwards in equities and hence long term investors stand to gain by linking their investments to their long term goals.
One big factor that the markets will be closely watching is the success on the vaccine front and subsiding of the coronavirus risk. “While investors are optimistic about markets in 2021 with a vaccine being expected to launch this year, predicting how the markets will move in 2021 is difficult,” says Harsh Jain, Co-founder and COO, Groww.
As an investor, especially those who have their asset-allocation in place and not exposed to any one asset-class or any one industry is better placed to face the uncertain environment. Equity mutual fund investors who have already linked their investments to long term goals may continue with their SIPs.
If the investment scenario becomes worse in 2021, according to Jain, here are some important steps that investors can keep in mind:
1. Diversification will still hold relevance in 2021. If the volatility continues, then an investment portfolio that is diversified across asset classes and different sectors within each asset class can help reduce risks.
2. Regardless of the way the market performs, avoiding emotion-based decisions can help make better investment decisions.
3. If investors are looking at buying stocks, then they should research the company’s fundamentals and not just stock price movements. This approach can help them buy stocks of companies that can withstand an economic downturn.
4. Usually, long-term investors don’t get ruffled with market volatility since markets tend to average out over time. Hence, even if the investment scenario deteriorates, keeping a long-term view can be beneficial.
5. Systematic Investment Plans or SIPs are designed to help investors benefit when markets are volatile and falling. Hence, if markets deteriorate in 2021, starting a SIP can be a good option to benefit from rupee cost averaging.
Not just in 2021, these investing mantras will benefit you in the path of wealth creation anytime. Building in a de-risking strategy also helps. With about three years away, start shifting funds from equities to low volatile assets such as debt. This will help to preserve the capital rather than expose them to the volatility nearing the goals.