Indian investors have been in a tizzy since the war broke out between Russia and Ukraine. The stock market goes through periodic turbulence caused by various factors. Two years back, it was the pandemic. Now, it’s the war.
As testing the time may be, investors need to avoid panic. There often may be no need to book losses to make a hurried liquidation of investments. Sometimes, it’s best to stay put. You may have short-term losses with the ongoing turbulence. But it would help if you did not allow this to impact your long-term financial planning and your investment goals.
The stock market has seen it all in the past — recessions, pandemics, wars and political upheavals. It has also bounced back and given returns to those who had remained invested. Here are some tips for Indian investors to overcome their fears due to the Russia-Ukraine war.
Avoid Hasty Decisions
It is not advisable to hastily liquidate the investments in a volatile market. Your decision may soon turn to regret once the markets bounce back. More specifically, a short dip should not be the only reason you want to sell. There need to be more compelling reasons for the liquidation, such as achieving an investment goal or avoiding a very specific risk that hurts you badly — for example, owning stocks in a company whose primary source of revenue is Russia. If there are no other compelling reasons, holding your ground may make more sense. A recovery may soon follow. It would be best not to panic when you see your investments in red. Continue the investment in a manner your objectives dictate.
Diversification of Investment
It is a good idea to diversify your investments into various asset classes to offset risks from any one class. Basis your financial goals, you can allocate a portion of your assets to options such as provident fund, real estate, gold, or bonds — or even a bank deposit. The right mix of investments, created as per your investment objectives, will keep you afloat in any economic weather.
Check Your Financial Goals
Your financial goals will guide you through uncertain times. Your goals should help you decide whether to stay invested or withdraw your investments. For example, suppose you have invested in a five-year SIP, and after three years, something unexpected like war happens. In that case, you still have two years to wait to let your investment grow or recover from the fall.
Think Before Switching Your Investments
The equity markets may nosedive in reaction to a global crisis. Still, investors must not rush into switching their portfolio without thinking it through. These decisions should be guided by firm investing principles and knowledge rather than knee-jerk reactions to volatility. Social and political tensions will impact the market. But in a crisis, think of why you invested. The clarity will help you avoid costly decisions.
(The author is CEO, Bankbazaar.com)