Stay Invested, Stay Disciplined

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors 

Global financial markets are in the midst of mayhem due to the novel corona virus pandemic. Investors are highly anxious about the level of fall in the stock market and its impact on their financial future. Clearly, these are challenging times and hence investors must avoid doing things that may derail their investment process. There are some do’s and don’ts which, if followed, can help keep your investments on track through these turbulent times. Let’s begin with the do’s.

Be Patient Equity investments require investors to demonstrate patience and perseverance as markets tend to turn volatile from time to time. No doubt, it can be a little tricky to remain calm when you experience a steep fall like the one that we are witnessing now. Therefore, the right way to avoid making ad hoc decisions is to believe in your investment plan and the potential of the asset classes you are invested in. In other words, it is vital that you don’t allow the current turbulence to influence your long-term investment strategy.

Focus on Your Goals Investors following a goal-based investment process are better equipped to tackle the current scenario than those who don’t have an investment plan in place. The best thing about following a goal-based investment process is that it encourages you to follow an asset allocation model. Although equity market gets impacted the most in a current market like situation, you can handle the situation without panicking since you would be aware of how much time you have to recover the lost ground.

For example, if you are investing to create a corpus for retirement that is 10-15 year away from now, you can wait out these turbulent times and benefit from the true potential of equity funds in your portfolio. However, if you have been investing without having a clearly defined time horizon, it can be quite difficult to tackle a situation like this. Hence, you must try to align your investments to different goals and rebalance the portfolio, if need be.

Learn from the Past Globally, stock markets have faced similar situations in the past and recovered from the lows witnessed during such outbreaks. Therefore, the key is not to hit the panic button. History shows that disease outbreaks often weigh on stock markets in the short term and the impact usually fades away between six to 12 months. While historical returns can’t be taken as an indication of future returns, they do provide us guidance in terms how the markets could react once the spread of the virus is curbed.

Continue your Investment Process Systematic investing helps you in keeping emotions out of your investment process as well as benefit from ‘averaging’. While market volatility does impact your portfolio in the short term, the impact varies depending upon for how long the process has been continuing. For those who started investing over the last few years, the impact is much more as compared to those who may have started investing say 6-7 years ago or even earlier. Clearly, the longer you continue investing in a disciplined manner, the lesser is the impact of volatility.

There are some don’tsthat are as important as do’s:
Don’t Look at your Portfolio Everyday : While it is important to monitor the progress of your portfolio, looking at it on a daily basis begins to impact your psyche in different ways depending upon the market conditions. When stock markets are doing well, you may get a strong urge to invest aggressively and that usually takes you beyond your risk-taking capacity. Similarly, in a falling market, it creates self-doubts in your mind and that may compel you to take ad hoc decisions of either exiting from equities or stop making fresh investments. As is evident, looking at the portfolio frequently doesn’t help and hence must be avoided.

Don’t Try to Time the Market : A falling market also provides an opportunity to invest at lower levels. No doubt, the current market levels are also quite attractive for making long-term investments. However, considering that volatility is likely to continue for some time, making investments with a hope to make a quick buck can expose you to a high-risk situation. Of course, if you have an investible surplus that can be put aside for longer-term, it can be invested as a combination of lump sum and systematic investing over the next month or two