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6 Investment Tips in Times of Market Volatility

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Published: Friday, September 9, 2011, 14:29 [IST]

6 Investment Tips in Times of Market Volatility

Volatility has become a part and parcel of the Indian economy now. From erratic index movements to fluctuating interest rates, the economy has seen it all. In the face of the recent market downfall, here are some key tips to help you make sensible investment decisions. Market movements cannot be predicted, but these practical tips can definitely help you manage your risk better at uncertain times.

Tip 1: Avoid Panic and Hasty Decisions
History says that when markets go down, they rebound too. Of course this may take some time. Market ups and downs are all part of the investment cycle. Thus you should be patient and follow a wise investment strategy and stay on track to fulfil long-term financial goals. Panic could lead to hasty decisions which might just create a bigger hole in your portfolio.

Tip 2: Do Not Stop Your SIP
Systematic Investment Plans (SIPs) are recommended by most financial experts as the best bet to beat volatile markets. With the power of “Rupee Cost Averaging", SIPs have the potential to minimize losses and generate returns. When the market goes up, the number of units you get decreases, and when the market goes down, you buy more units, thereby averaging out the value of the units held. By stopping an SIP, you defeat its whole purpose and lose the chance to buy more at lower prices. You could actually make the market volatility work for you by continuing your SIP.

Tip 3: Don"t Put All Eggs in One Basket
A sure shot way to protect yourself from any market downturn is to have a diversified portfolio. Spread your investments across the three asset classes – equity, bonds, and other short term debt investments, and across different sectors. In times of market uncertainty, when the assets held have minimal or no correlation to each other, you could cut down the volatility and risk experienced. Diversification though doesn"t guarantee a profit nor does it guarantee you against a loss, but it sure does act as a buffer to reduce the impact of a volatile market. If you are investing in mutual funds, choose a diversified fund, rather than sectoral funds.

Tip 4: Stick to Your Financial Plan
Having a financial plan lets you deal with a volatile market in a much better way. Be clear of what you want, your goals, it"s time horizon- i.e. whether long term or short term, and your risk appetite. All these aspects must figure in your plan. Stick to this plan so that your prime objective of accumulating wealth for your goals is met. Having an understanding and clarity of the whole picture will help you review your strategy and make changes accordingly, if needed so.

Tip 5: Do Not Time the Market
Wouldn"t it be so nice if we could always know which is the best time to invest money, and which is the right time to pull it out? In reality such a thing is not always possible. Short term market movements are difficult to predict, and the success in timing the market is more to do with luck than skill. Many financial experts too often fail to tell predict the peak and trough of the market. It is therefore best to avoid such guess work of timing the market. To iron out the impact of a volatile market, the key is to stay invested for the long term.

Tip 6: Get Professional Help If Required
If you are in a fix about how to manage your wealth during such uncertain times, do not hesitate to seek the help of a professionally qualified Certified Financial Planner to guide you. A financial planner could evaluate and re-examine your portfolio and offer a comprehensive plan that would help you meet your short term as well as long term goals.

Investing involves risk and, almost all investment cycles have the risk of losing money at some point in time. The value of your investment would thus be subject to fluctuations too. Investment experts thereby recommend a regular evaluation of the investment strategy and portfolio, to ensure you are on the right track and your investments continue to work towards your goals.

InvestmentYogi

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