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Stock markets across the globe have witnessed extreme volatility in recent weeks over the ongoing coronavirus pandemic sparking recession concerns and wiping years’ worth of profits in days. Understandably, investors have started feeling the heat with their focus shifting to capital protection over capital appreciation. However, the fact remains that tough situations like the one we currently find ourselves in require calm nerves as panic-stricken financial decisions can jeopardise our financial future. As an investor, you need to believe in your pragmatic strategies or reinvent certain plans to minimize the shocks of the current situation on your precious investments. Moreover, you need to remain patient as there are enough indicators to suggest this economic uncertainty could stay for a while.
From Rs 1.7 lakh crore financial package for the poor to the loan moratorium for the borrowers, the government and the Reserve Bank of India have been taking numerous steps to provide relief to worried investors, borrowers and the common man. However, as an investor, if the volatility in the market is worrying you, here are a few strategies you can follow:
(1) Stay put in your investments
Do not panic. That is the first rule to apply in any adverse situation. The turbulence in the stock market creates panic among investors. While you may like to exit an investment in the bear market, doing so without carefully analysing the repercussions may adversely impact your portfolio in the long run. Nothing lasts forever, and so the crisis inflicted on the markets by the Covid-19 crisis may also end after a while. After assessing your financial capability and risk tolerance, you may also consider accumulating more shares in a bear market as the markets are down. So, do not exit your existing investments, and on the contrary, if your finances permit, you can use this financial turbulence as an opportunity to accumulate more.
Also, if you are a systematic investment plan (SIP) mutual fund investor, you might not want to stop them if they’re in line with your long-term financial goals because SIPs are better equipped to absorb market shocks and fetch desired returns in the long term. Besides, the sliding markets may give investors an opportunity to accumulate more mutual fund units at deep discounts.
(2) Diversify and make your portfolio strong
One of the smartest ways to deal with volatility is diversification. If you haven’t done it till now, you can still park your money in varied asset classes. This simply means having a blend of short-term and long-term financial instruments in your portfolio in accordance with your risk appetite, income, age, liquidity, and financial goal. A diversified folio helps your investments resist market pressures. So, if you want peace of mind while the markets are topsy-turvy, go for diversification. Based on your financial goals, invest in debt instruments like Public Provident Fund (PPF) or fixed deposits, or invest in equities through mutual funds. Also, do not try to readjust or sell off most of your portfolio during a crash since you are set to lose big. You can take the help of a financial advisor to understand what works best for you.
(3) Prioritise clearing of expensive debts for more liquidity
Fears of an economic recession and job losses are hovering above us due to the unpredictability unleashed by the coronavirus crisis. The RBI has asked the banks to provide a 3-month moratorium on term loans and credit card dues in a bid to help borrowers better manage their finances during this pandemic. However, do note your loans will continue to accrue interest even if you opt for this 3-month EMI holiday. So, if your cash flow isn’t getting affected much because of the coronavirus situation, you’ll be well-advised to continue with your loan and credit card repayments.
If you’re struggling with a high-interest charging debt like a credit card due or a personal loan debt for a while, you may want to clear them at the earliest utilising the decline of regular expenses in recent weeks. You can also consider debt consolidation as an option and borrow from a lender to pay off your high-interest credit card debt and loans all at once at a slightly cheaper interest rate during the discount period. Paying off your debt will give your more money at your disposal, which you can use to build or increase the size of your emergency fund or make smart investments to be better prepared for any challenges arising out of this crisis.
(4) Explore other safer investment avenues
You should not completely stop your investments due to a sharp fall in the markets. You can invest the saved money in safe investment options like the small savings scheme that assure capital safety and steady returns despite the recent lowering of interest rates. You can also consider investing your money in a non-cumulative fixed deposit that can help you earn regular interest pay-outs as per your needs. You can also consider slightly increasing your gold investments – whether in physical form or dematerialised instruments like gold mutual funds and Sovereign Gold Bonds– to reduce the impact of market volatility on your investment portfolio.
While the United Nations chief has termed the coronavirus crisis as the biggest challenge for the world since World War II, the international body’s trade arm predicts a global loss of trillions of dollars of personal income. The financial tremors may also be felt in India though it’s a bit early to give it a shape and form. So, the best mode to gear up is to reassess your personal finances and ensure their safety before any hiccup.
Adhil Shetty is a guest contributor. Views expressed are personal.