Recent market moves both up and down have made investors unnerved. The markets have offered a bumpy ride, and this is likely to make an investor uneasy with investments. Volatility can sometimes be your friend as it provides an opportunity to buy and sell stocks at target prices. But at the same time, volatility can dramatically affect the nuts and bolts of investments. The markets can punish you if your strategy goes wrong or is ill-timed.
In this blog, we seek to discuss how to invest in a declining & volatile market conditions.
Short-term pullbacks shouldn’t result in a hasty reaction.
An emotional reaction to any news such as policy changes, government change, trade war, or any other geopolitical tension should be avoided. Often people ask what your view on the market volatility is when it is falling, or it is climbing.
I have been answering saying – “Market is as usual”
Market, by nature, is likely to correct at every interval or in a haphazard manner. What is essential for an investor is to understand how the news impacts the company fundamentally and then take a call. It is advisable that the investor gets back to the drawing board and assesses the impact of the news in a fundamental way. While evaluating, always remember those volatile market conditions pullbacks and corrections are part and parcel of long-term investing. Thus, the vision should be evaluated concerning the news and not short-term losses.
The disciplined approach in market volatility helps accumulate
Emotions have no place in investments. Thus, the decision to own or not to hold stock should be based on research and fundamentals and not on feelings.
When the market volatility gets choppy, you should evaluate and put to use the additional capital for buying in. Also, if you are looking at the long-term wealth creation, adopting a disciplined approach of investment, including the Systematic Investment Plan (SIP), makes more sense. This is because SIP helps you average out the position and amplifies the profits over time due to the effect of compounding.
Maintain risk tolerance & asset allocation while investing in volatile markets
Many people think that if the market is choppy, they should put in all they have in their selected names. While the thought is good if you are a fundamental investor (one who employs methods such as bottom-up stock selection) but remember putting all money during the volatile market in the existing portfolio ain’t a good thing to do.
An investor should always keep his/her risk tolerance in check. Risk tolerance should be read with the asset allocation, and investors should ensure that any additional exposure during the bumpy ride is carried out in tranches and not one shot.
If having doubt in investment strategies in stock market, have patience
Patience is the key to success. Remember, Rome wasn’t built in a single day. Similarly, you need the persistence to create wealth. If you believe in your pick but do not want to add more to your position, you can always wait for the market to stabilize and your stocks or funds to perform.
Alternatively, if you are in split about what could happen with your investment, it is better to wait for some time and let things settle down before you reevaluate. Jumping onto a conclusion within a few hours or days regarding a pick makes no one a great investor. A wise investor always tries to check all cards before making a move.
Also Read: How Much Of Your Salary Should You Invest?
Let us see few examples –
If you had invested in Unitech, Jai Corp, Suzlon Energy, Aban Offshore, and Kingfisher Airlines on January 10, 2008, you would be holding a horror of a portfolio today.
But if you would have invested in the fundamentally sound company and took the decision to add to the name, your portfolio would have shined. For example, investment strategies in stock market such as Eicher Motors, or The Titan Company would have multiplied the portfolio multiple times all this while (see charts below).
Share price of Eicher Motors Ltd.
Share price of The Titan Company Ltd.
What are best mutual funds for volatile markets?
If you are investing in volatile markets, we believe you should always look at the composition of the fund, sustenance of alpha, Sharpe ratio, beta, standard deviation, and subjective factors such as management stability, experience, and investment philosophy.
These factors should help you gauge if a fund is worth investing in or not. If you believe that despite the correction, a fund has not changed fundamentally, and it holds its real value with the long-term view, you should use the corrections or volatility as an opportunity to cash in the portfolio.
At this juncture, allow us to introduce you to one of the most used apps for mutual fund investment app – Tarrakki. Use Tarrakki to plan for your investments. Learn from our blogs, and also get the expert advice and access Tarrakki recommended funds all in one place. With Tarrakki, even the volatile market seems easy. Check out the app today in iOS and Android.
To conclude, we can say that most investors are unaware of the behavior of the market. Investors tend to panic in times of volatility, and such wrong moves have resulted in investors losing tons of wealth.
By using a systematic approach that is value-driven and is research-oriented, an investor may be able to protect their assets more fully. Thus, it is advisable to remain calm and patient in times of volatility and evaluate before reacting.
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