The previous month has been detrimental to investment portfolios, equity markets fell 35% & to make it worse, debt markets are in bad shape too.
This is where we are getting calls from our clients and prospects, who are looking for recommendations on their portfolio, asking to buy more or sell everything and shift to bank FDs. So to keep things simple, I have penned down Do’s and Don’ts in current investment world amid COVID-19
DONT’s in the investment world :
1. Don’t stop your sip
As Equity markets have fallen 35%, investors are witnessing negative returns and that is where the concern is whether to continue or stop the sip. Don’t stop your sip. As markets are down, your monthly sip will accumulate a number of units at a lower nav. In a few year’s time, when markets bounce back and there’s a rally, these accumulated units will not only help in recovering your current losses but also give you higher returns. Such times give added advantage to sip investors in the long term.
2. Don’t just buy something out of emotions – Have your logic in place before entering
Direct equity investors are very excited to enter into markets and buy those stocks which were favorites of the markets, but hold on to your emotions. Don’t just buy something out of emotions, because the current issue of COVID-19 is not just about this quarter, for many industries, this might impact another 2-3 quarters, which will further drag down stock prices. So, before investing, understand the industry and business models so you can wait and buy at lower levels
3. Don’t invest 100% of your investment capacity in one go
I Do agree markets have fallen pretty sharply without sparing any industry or particular sector/stock, which urges an investor to enter at these levels as valuations are pretty attractive at these levels, but there’s uncertainty in the current markets with subject to these virus issues. So, markets may fall further in the coming months, that’s where I say invest it in a staggered manner of 20% at every 5%-6% fall from here on.
4. Don’t pay too much attention to market news
If you are a long term investor, stay away from noise i.e. Don’t pay too much attention to market news. Media/news will flash something that will definitely disturb you as an investor, which may result in the redemption of your investment or investing in a particular stock without giving much thought. In either case, it won’t be a wise decision. Sticking to your goals & time horizon, Following the basics will surely help you make wealth in the long term.
5. Don’t keep looking at your portfolio
Since markets are down amid COVID-19, and people are on lockdown in their homes, people tend to look at the news on one side and their portfolio on the other side.
But looking at your investment portfolio every day will only develop anxiety within you, which will force you into a wrong move, which you might regret later.
Moving to the DO’s :
1. Do keep money aside for your emergencies.
Always have 6-12 months (depending on the nature of your job) of your monthly expenses as your emergency fund which is also called a contingency fund. When markets are low, people try to be opportunists & invest their contingency fund, but let me warn you never ever to make this mistake. The need for a contingency fund is for job loss, salary cut or any other emergencies. One may need this if the current situation prevails.
2. Do keep in mind markets will take time to recover
The current situation is not just about coronavirus, it is a global economic issue as well. The IMF (International Monetary fund) has already declared it worse than the 2008 recession. So, it may take 4-6 quarters to recover. Don’t panic or get agitated and take some unwanted actions.
3. Do buy gold as a part of your portfolio
Gold as an investment is always a safe haven & having 5-6 percent of your investment in gold is recommended, whenever there have been global economic crises, gold as a commodity starts to glitter. Gold has rallied from 40000 odd levels to 43500 within a few weeks, a similar run can be seen for the coming 3-6 months as well. So, even a short term investor can look forward to gold increasing in value, especially during crises. You can even increase your allocation by 5%.
4. Do Increase your sip for next 1 year
As a risk-averse person, one may ask, how should we benefit in the investment world in the current situations, as investing a lump sum would be risky? I understand investing lump sums would be difficult and at the same time, a bit risky, but as I said, in my earlier point, markets may not recover soon, so a risk-averse person can start or increase his sip for a span of 1 year.
This one-year’s sip can be a weapon of one’s investment portfolio.
5. Do Invest lump sums in quality blue-chip stocks
Aggressive investors might be currently watching markets and feel very excited to go hopping, yes certain stock prices are more than attractive. But, before we start filling our shopping baskets, try to understand three things:
a) nature of business for the stock that you will be buying so you need to think about how the coming quarters will fair in the given situation.
b) Survival Capacity of the business that you intend to buy because the current situation can drag some small businesses into bad shape.
c) The Longevity of the business plays quite an important role because such global crises have been a part of the past and these businesses have that art to sail through it that is why they are still thriving.
These qualities can be seen in the blue-chip stocks.
Remember, this kind of pandemic is not something any of us has ever witnessed, so I request please follow the World Health Organisation guidelines and adhere to the government rules. #Staysafe #Stayhome