Save Your Investments From Market Volatility
The stock market volatility since Covid19 struck has been alarming. In March 2020 alone the Indian Sensex tanked a shocking 700 points resulting in a loss of almost Rs 3 Lakh Crores to investors. With the sentiments throughout stock markets being gloomy, domestic and international investments are sure to suffer.
In such a scenario, a risk averse investor may often jump to the occasion and take rushed measures to save his depreciating investments. While this is a prudent move, it may also result in some errors in judgement.
Thus, it is imperative that risk averse investors take the following measures while designing their portfolio. This will help them hedge their investments during a volatile market and save them from future duress.
- Avoid setting your eyes on a fixed price: Investors often have a very black and white mindset when it comes to profit and loss. According to novice investors a price above the initial investment value is a profit and as soon as it goes below it’s booked as a loss. However, the crux of a volatile market is that it goes extreme highs and lows intermittently. Thus, investors should not make hurried decisions and allow their investments prize to apprise gradually. This way even if they cannot recover the total investment due to a bearish market phase, they will nonetheless be able to minimize their loss ratio.
- Diversify: ‘Don’t put all your eggs in one basket’. The age old saying holds absolutely true in this case. Diversification of investments should be a thumb rule for every investor. While investing a part of the savings in stocks, investors should also look at metals, real estate, fixed securities and bonds as other investment avenues. In most cases, the prizes of gold and metals works inversely to the stock market. Hence, in a crisis situation when the stock market savings dip, the appreciation in gold rates can help save the day.
- Focus on fixed returns: Playing in the equity market – with that huge anticipated profit ratio is very tempting. However, it is the equity market that bites the dust when the stock market tanks. Thus, out of a total saving portfolio, investors should focus a good chunk of their savings in fixed securities like mutual funds and debt funds. Even though mutual funds and debt funds also invest in the market, they are much more safer and regulated than individual investments. They also guarantee a minimum fixed return, thus cushioning the blow of a volatile market to a great extent.
- Create an emergency fund: The importance of an emergency fund in a holistic portfolio cannot be stressed enough. In a crisis situation an emergency fund is a golden resource to save you from unavoidable financial distress. Money saved in an emergency fund should be invested in avenues which have a fixed return and are completely immune from stock market fluctuations. The best way to lock this money is in the form of government bonds or metals that can be converted to cash as soon as possible.
- Invest in bluechip: Bluechip investments are essentially marquee companies that have enjoyed investor trust from time immemorial. In a volatile market, even though the value of these scrips depreciate, it will not go down an alarming hollow. There is also a confidence, that once the market recovers, bluechip investments are the first one to touch the sky. These securities should be a fixed component in a portfolio for long term investment basis irrespective of however the market conditions are.
- Don’t panic: Last but not the least, DO NOT PANIC. The share market is a highly sensitive index which fluctuates on either sides with the slightest blow. Thus, investors should keep in mind that even if their investments have gone to a certain low today, with time the market will recover. Hasty decisions and impulsive purchase and sales should be strictly avoided.
The stock market is an interesting game. One where winners win big, but losers lose big too. However, this is also a game, where creativity and experience beats the brightest of theoretical knowledge. Thus, it is a healthy mix of theory and experience that one must apply to formulate their portfolio to rise from bear to bull, even if it is in a crisis.
Do you have a strategy to hedge yourself in a volatile market? let us know in the comments.