How to Invest in Volatile Markets!
Do you feel overwhelmed because of the Market nowadays?
Since the last 6 weeks, it has been a scary roller coaster ride for the majority of investors especially those who took their baby steps towards investing post-pandemic and are facing a growling bear market for the first time.
In the last month, Indices have been very volatile, Nifty touched the 18k mark and is oscillation back and fro but is not near the 17500 levels.
My dear fellow investors we are all into this and I assure you, you are not alone.
There has been mixed news in the Markets right from the increase in the number of unicorns, the IPO bandwagon, the changes in policies, stock splits and not to forget the political sentiments.
With such type of sentimental news all over the market is bound to react.
Also, not to forget the plunge in people affected with Coronavirus around the world slowly starting again.
In a vague image, this could be just a start!
Therefore, it’s not just we Indian who are affected by market volatility.
Major stock indices: Dow Jones, S&P 500, Nikkei, FTSE, DAX, etc have been seen to observe corrections.
Over the past year, we have seen markets highly trending and hence for not a small correction is expected.
But now the markets are not just correcting, it’s taken a different form, Bear form!
In 2015 – 16, during the correcting phase, large caps were the most affected but surprisingly midcap funds gave positive returns.
Similarly, in 2018 – 19, mid and small caps were affected and large-cap funds were able to give stable returns.
In a growling bear market, unlike 2019 and 2016 all market sectors are affected but an investor knows that it’s just history repeating itself!
A majority of newbie investors are experiencing such a situation for the first time, but if you look back at the historical stock market you would be at ease.
High trends in the market are followed by bear markets and it is completely normal!
Instead of panicking and feeling overwhelmed an investor can abide by these listed below:
Be patient:
It is understandable that you as an investor feel being torn apart because of your deteriorating investments.
You might feel stressed because of the feeling that your portfolio may become red!
During such circumstances, it is advised to stay calm!
This is because if you panic, you might end up making wrong decisions because these decisions are no more logical but are emotional!
It might have a great impact on your finances destroying your principal as a whole!
Losses in the equity are inevitable, but if you stay invested for a longer horizon the losses recover and you see the compounding effects working magic on your portfolio!
Market trends, correct themselves, recover this is its cyclic nature.
Eventually, if you invest and now sitting with losses don’t worry in the long run your portfolio will rectify and recover itself.
Understand that the price degression in bear markets can be severe, but the good news is they don’t last long.
History says the market recoveries have been sharp because of the globally developing economy.
Therefore, next time you see the markets trembling and, on the verge, to reverse trend remember its time to pack your bags and head for a vacation!
At such times, not investing is the best investment!
Invest systematically
When we say, ‘the market is trending’, it does not mean the market grows linearly, the overall trend may be upward but the market really never rallies every single day.
There are noises, disturbances and which we called it volatility.
Volatility is an integral part of the Market.
An experienced investor understands the importance of volatility for the rest volatility is just chaos.
If you are one who feels volatility is chaos, my dear fellow investor, Systematic Investing would serve your purpose well!
It is the best form of investing which inculcated financial discipline and helps reap rich rewards during such volatile/bear markets.
Rupee cost averaging plays a vital role as you will be investing on regular intervals (systematically) at low valuations.
But note that if you stop your SIPs in a volatile market, you will not be able to reap the advantage of Rupee Cost Averaging.
Such bear markets are the best times for your SIP because you might get high profits from the investments made during this period.
Use a simple smart strategy
Investors accumulate a lump sum amount for investment purposes but may feel insecure and refrain from investing.
But here’s the catch, as an Investor you should understand that markets are impossible to predict.
Be it the peak or bottom.
If you are worried about volatility you might worry your whole life to invest because markets are volatile it’s just that some days, they are highly volatile and some days markets are less volatile.
Hence it is advisable to go for a Mutual fund or Systematic Transfer Plan (STP), whereby you invest a lump sum amount at a low-risk debt mutual fund where an investor has liquid fund and then can transfer funds systematically to an equity fund of their choice over a period of time.
The time period here might be subjective 3 months, 6 months, 1-year etc depending on the investor’s goals and the market volatility.
Investing through the STP mode, enables you to take advantage of the Rupee Cost Averaging against the market volatility and also aim to benefit from liquid fund returns.
Note that these returns are dramatically higher than the interests of saving bank rates.
Conclusion
Equity is an asset class that comes with a tag of ‘high risk, high reward’ because of its nature which is intrinsically volatile.
However, there are periods where investors can face extreme volatility which can test their patience.
This blog article is to remind you that we are going through such a phase now and none of us has any idea on how long is it going to last.
Therefore, accumulating capital is a traditional thing now, to be smarter SIP investing is a good head start!
When investors start understanding the difference between their risk and volatility losing money over losing opportunity starts hurting less.
Therefore, one is likely to make a loss in such a market if they redeem instead of staying invested.
Keep up and stay put in the market for long if you want to be rich.
One should avoid being affected by rumours and remain focused on your financial goals.
So, while the market settles itself I’ll just relax for a while and go for some outdoor adventure!
What about you!?
Did you plan your adventure already?
Happy adventure!
Happy Investing!
Until Next time…