How to avoid sleepless nights due to volatile stock markets in 2023: Two tips

Check two tips for mutual fund investors to deal with market volatility and declining Sensex in 2023

how to deal with market volatility in 2023
Sleep well. Markets going up and down regularly is just normal. Representational image

Sensex going up and down and up again is common. But investors, including those who have invested in Mutual Funds, often lose their sleep whenever Sensex starts trading, say even 5% below the peak level at any given time. Is it right?

Experts suggest losing sleep over volatile markets is not right. Investors should know their priorities and long-term expectations from the market and take confidence in their investing strategies instead of worrying every now and then.

“Historically, equity markets have gone through temporary declines of 10-20% almost every year. Nearly one-fourth of the days in 2022 saw Sensex trade at least 10% down from the peak levels at that time. The year 2022 was a perfectly normal year for equities both from a volatility and bad news standpoint. As a reality check, this is exactly what you signed up for,” says Shrinath ML, Senior Research Analyst, FundsIndia.

Also Read: Go for index funds, but don’t ignore active funds

How Sensex behaved in 2022 and how it has done historically

In 2022, Sensex traded 5% below the then peak level on 140 out of 248 days of the year, which is around 56% of the full trading year. On 60 out of 248 days, Sensex traded below 10% of the peak level and on 5 out of 248 days, it traded 15% below the drawdown level.

The performance of Sensex in 2022 (as seen in the above chart) was very normal compared to the past years. For instance, between April 1979 to December 2021, Sensex traded 10% below the peak level on 51% of the days and below 15% on 40% of days. On 30% of days in this period, Sensex traded below 20%.

How to prepare for 2023?

Investors should expect the markets to go through the up-and-down cycle once again in 2023. Shrinath suggests two important points that investors should keep in mind to avoid losing their sleep in 2023.

Remind yourselves of what to expect

As we have already seen, 10-20% declines happen almost every year in equity markets. And every 7-10 years, there have been major declines with falls ranging between 30-60%. Have these as part of your base expectations.

Also Read: Should you invest in multiple mutual funds?

Revisit your asset allocation

If you didn’t lose sleep over the market volatility last year, you are sorted for 2023. Stick to your asset allocation plan and rebalance if any asset class deviates by more than 5% from the original asset allocation.

However, if 2022 put you through sleepless nights, most likely you are overexposed to equities and it’s high time you revisit your original asset allocation.

(Disclaimer: The views expressed above are of the respective commentators. Mutual fund investments are subject to market risks. Please consult your financial advisor before investing)

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First published on: 06-01-2023 at 16:38 IST
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