Several events are happening across the global and domestic economic fronts which can directly impact an investor’s sentiment. While concerns over the Sino-US trade war are deepening on the global front, the general election verdict in the country is leading to record highs at the stock market. That being said, you may find the prevailing investment market to be a testing time for the investors’ acumen and patience mainly owing to the volatility factor. It is important for investors to make their move smartly and take due precautions to avoid losses.
We have listed out some important investment tips to help you make rational and prudent decisions in the current market situation:
With share prices touching new highs, you may want to rebalance your investment portfolio and maintain the correct ratio between debt and equity assets according to your return expectations and your financial goals’ demands. Suppose, as per your risk appetite and return requirement, the debt to equity ratio of the portfolio is 60:40, but the price of the equity portion has increased significantly. Now, your portfolio stands skewed towards equity with a ratio of 20:80. So, you’ll be well-advised to book profit in equity products and increase allocation in the debt portion to rebalance your investment portfolio.
The ups and downs in the stock market will continue, and you must not deter from your long-term financial planning due to market volatility. It’s important to stay invested and sync the investment portfolio as per your financial goal. You must not become greedy and rush towards putting all your money in the stock market in expectation of higher return.
Though the stock market is making new highs due to high political sentiment, it’s recommended to keep your investment portfolio adequately diversified in different asset classes. It will protect your portfolio when the market turns negative. While diversifying investments, keep your age, risk appetite, and financial goals in mind. If you are young, then you can have higher exposure in the equity market in comparison to the debt market, but if you are close to retirement, then focus on debt investment to keep the risk factor lower.
Some investors believe that when the stock market trades at highs, they’ll get a lesser number of units in the mutual fund equity SIP; therefore, they stop further investment. It is important to understand here that the Systematic Investment Plan is one of the best tools that provide you with the benefit of rupee cost averaging. So, when the stock market is up, you’ll get a lesser number of units, but when the market is down, then you’ll get a greater number of mutual fund units. Therefore, it ensures that despite a volatile market, you earn a good return. So, don’t stop SIPs and invest consistently to get to your financial goals.
It’s important to re-evaluate your risk appetite from time to time. Currently, the stock market is highly sentiment driven, and it may turn volatile anytime. If you are not in a position to take a high risk on investments, you can shift your equity-related investments to other avenues such as debt fund or fixed deposits. At the same time, it is critical that you steer clear of rumours. Take informed investment decisions to avoid unnecessary losses.
The political sentiment may stabilize in the coming days or weeks, but at this point of time, if you make a hasty investment decision, it can easily jeopardise your efforts towards achieving your short and long-term financial goals. So, take your investment decisions wisely, avoid panic, keep patience and stay invested to meet your goals in time.
(The writer is CEO, Bankbazaar.com)