It’s been a story of new investors crying foul over markets falling every day and we even see memes like “Nifty has strong support from 3.30 pm to 9.15 am these days”. Should this really be a cause of worry? What should new investors do during these volatile days? What can old investors do? I shall try to answer these questions in this blog if you have them in mind.
What can old
First and foremost things
that I would suggest is not to worry about the short term crash and volatility
as your objective should be long-term wealth creation. So do n’t stop your
current SIP’s instead review your portfolio first. If you would want to
make any changes in the equity portfolio you can make them now as most of the
stocks and equity mutual funds are below the value of Jan 30thso that you can reduce your LTCG cost for
portfolio clean up.
If you would like to
stick to your existing stocks/ mutual funds you can add more of them at regular intervals so that you can reduce your
average cost if you had bought at high price.
Take away: Don’t stop SIP, Rebalance, buy more
regularly as much as possible
What new investors
As a new equity investor the
crash might give you heart breaks as you may be afraid of investing in equities
or you might already be sitting on loss. Does it mean end of everything ? not
at all. These kinds of corrections and crashes are part of equity markets and
as you get experienced you will get used to it.
This is the right time for
you enter into equity investments as you get good discount from recent high
made. However it wouldn’t be wise to invest all your money in one go. First of
all define your goals, see what goals are away by 10 years. Now based on the
goal above 10 years and your risk capacity define your equity allocation. Choose your funds/stocks wisely and do SIP’s
for financial discipline. Also add more equities in lump sum whenever you see a
considerable dip. Remember you don’t know what is the bottom. Hence whenever
you feel valuations are attractive start adding them.
Take away: Start SIP’s. Add more in lump sum on dips.
The bottom line is if you are
a long-term investor, stay invested and add more on dips.
Also read, 6 Key Ratios to look at before investing in a stock