Top financial lessons you can learn from the pandemic | The Financial Express

Top financial lessons you can learn from the pandemic

What one can easily learn is the fact that investors who stayed put during these tumultuous years did manage to create humongous wealth.

Top financial lessons you can learn from the pandemic
Volatile times are the best time to accumulate assets at lower costs.

Ever since the Coronavirus-led pandemic gripped the world in early 2020, the world’s financial markets have had quite a tough time. The Indian equity market, in particular, has had a topsy-turvy journey over the last two years with deep corrections and volatility. The key market indices hit a 7-year low just at the onset of the pandemic in April 2020, eroding nearly 35% of the investors’ value in a few weeks.

Such a strong value erosion, steepest in recent years, made market experts uncertain about the coming back of the growth trajectory. There was a widespread belief that the market would take at least 3-4 years to come back to the levels it fell from. However, proving everybody wrong, the markets climbed nearly 2.5 times as the recovery was too sharp and unexpected.

Moreover, all these events — steep fall, consolidation, and fast recovery — unfolded within 18 months while the country was struggling with the second and more deadly wave in 2021. Investors’ wealth doubled in no time as the markets regained the lost ground and added about 55% of additional value while hitting an all-time high.

And by the start of 2022, as the Russia-Ukraine crisis came to the fore sending tremors across the world, the world’s markets had yet another hit. Back home, India’s benchmark indices lost nearly 20% of their value in the first half of this year on the back of global as well as domestic macroeconomic situations. However, the last month saw Indian stocks reclaiming more than half the lost value.

Also Read: Why you should invest in international funds and how to do it

Investors who saw these two extraordinary years have a lot to digest when it comes to the basics of how to grow investments to fulfil their financial goals. What one can easily learn is the fact that investors who stayed put during these tumultuous years did manage to create humongous wealth. On the other hand, those who exited the markets or could not muster the courage to enter the market, given the rising uncertainty, failed to gain from the once-in-a-century kind of opportunities the markets threw.

Here are a few lessons investors should learn from the last two years:

Panic stalls Wealth Creation: When dealing with ‘Greed and Fear’ factors in investments, human psychology plays a vital part. Often, the majority of investors tend to make decisions in panic mode. As a result, during the free fall in the market, several investors chose the exit route. They missed the immense opportunity for wealth creation.

Adhil Shetty, CEO, Bankbazaar.com, opines, “The first lesson is: don’t panic. Observe the situation and don’t jump the gun in taking decisions which could have long-term ramifications on your investment prospects.”

Focus on Goals with Patience and Discipline: Investments aim to fulfil one’s financial goals. Every goal has a gestation period ranging from a few years to several decades. Investors need to stay invested for the period with a focus on their goals. It is advisable not to give too much heed to market noises which might unsettle you. It is worth remembering that patience and discipline are keys to a good investment experience.

Volatility is an Opportunity: Volatile times are the best time to accumulate assets at lower costs. Volatility should be taken as an opportunity to build long-term wealth. Volatility adds dynamism to markets and helps investors get higher returns.

Buy on Dips: The strategy of buying on dips through additional purchases adds up punch in your investment by significantly lowering your cost of investments. It is worth noting that long-term wealth can be created only when assets are acquired at lower prices. Market corrections, especially the deep and steep ones like the one at the onset of the pandemic, offer suitable opportunities to accumulate assets for the long term.

Corrections are Temporary: Stopping your investments or withdrawing them only because the market is falling is not a wise thing to do. Unless you genuinely need money or your financial goals are reaching soon, there is no reason to touch investments. It’s worth highlighting that various market cycles marked with corrections, volatility and steep upward moves are the ingredients of the market. A market without these would not be a market at all. One needs to understand and acknowledge this fact.

“One should never forget that corrections are temporary, but growth is permanent. It would be best if you endeavoured to stay put during corrections,” adds Shetty.

Have Asset Allocation Strategy: Adopt an asset allocation strategy irrespective of the market situation. It reduces the risks arising from the concentration of investments in a particular asset class. Asset allocation helps an investor take the optimum benefit of several asset classes depending on the market valuations. Historically, it is a proven strategy that, while creating wealth, keeps you relatively free from market-related stress.

These strategies may help you build your profile basis your requirements and risk appetite.

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First published on: 13-09-2022 at 10:00 IST