The Indian markets have seen volatility for a long time especially the recent times, which is caused due to many internal and external factors. One of the factors being the US economy, it is the largest in the world where the dollar is a reference for all countries, so any big movements in the US market invariably has a big impact across all major economies, including India. We are heavily dependent on oil imports for our energy requirements thereby a rise in crude oil prices results in a major sell-off in equities and bonds. Additionally factors like fear due to risk of fiscal slippage, a market correction cycle and to an extent, budget proposals do impact markets in a big way. These trends are unavoidable but if you are keen to protect your capital from risks like these, here is a quick guide for you.
News is not always what it seems
A strong portfolio with quality stocks or equity safeguards your capital during turbulent times, exclusively when the news headlines send you to panic-mode. Giving too much attention to news could get your emotions flowing, which in turn may lead you to make choices you possibly could regret later. If you are a long-term investor you need not worry about what the headlines really say, as long as you are well aware of the trends of companies and stocks you have chosen to invest in, as being misinformed could lead you to react rather than respond.
Educate yourself on trends
The market moves in either directions depending on the trends. Just like prices of individual stocks tend to trend thereby causing a change in direction, indices too are prone to move in a general direction until a trend causes a change in that direction. Uptrends are considered by prices making higher highs and higher lows. All trends drive the markets and largely determine the success or failure of your investments be it long or short-term.
Avoid making extreme changes in your portfolio
Based on trends, making changes to your portfolio could wipe out your investment capital and prove fatal to your financial plans. Chasing trends to make a quick buck could be disastrous as buying high and selling low can quickly get you run out of the business. The important thing to understand here is the demand cycle is created by the way companies reposition and repurpose themselves. Which is why if you have a quality portfolio you should avoid making changes as you will have what you need to ride the wave of the trend.
Rebalance only if required
Monitoring your portfolio is important but the frequency should be once in three to six months. If a particular stock has been trending downwards for a while and has been eating up profits earned, you should definitely rebalance it. Rebalancing is healthy as it helps to keep you focused on your target or the right asset allocation. A periodic rebalance to your portfolio will help reduce exposure to the risk relative to your target asset allocation. It safeguards you from being overly exposed to undesirable risks and ensures the exposure remains within the area of expertise without derailing your financial plans.
Get professional help
Market trends and equity indices can leave you very anxious, especially when you see the index rising swiftly making you worry about having missed the bus. A mixed opinion especially during these times can hamper your decision, leaving you confused on what should be your next move. You can always seek professional help on how to go about a strategic bottom-up approach, a capital approach or the mutual fund approach which does require a lot of monitoring of trends, stocks or other economic factors. It could get very tedious to personally monitor all changes around the market, so at these times you can get professional help and allow them to help you boost your returns over the long-term.
Buy at every dip
Each market direction whether up or down will come at a different time or a different level of dip. Timing the market to buy at the lowest dip to average out your investment could be very challenging. Even market experts haven’t been able to predict accurate market dips in order to buy at a dip. In a scenario like this you can buy at each dip and over a period of time, which in return helps you average out your investment rewarding you with good returns. So the strategy of buying right and sitting tight is the way to go to gain more from the volatility as depressed markets offer investment opportunity to buy quality stocks at cheap valuation.
Story partnered with MOTILAL OSWAL FINANCIAL SERVICES
First Published: Aug 6, 2018 9:00 AM IST
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