A guide to investment during difficult times
Jan 21 2016
Investors should know that ups and downs are part and parcel of the investing process. Hence they should never be surprised by the sudden changes in the equity market, but take them in their stride. They should not be shocked when there is high volatility, but be ready to ensure that they can make the best out of the situation. This can be done by planning in advance.
One thing that every investor should maintain during the hard times is discipline. Investors should ensure that they continue to invest in mutual funds. Those who have a systematic investment plan (SIP) going should never think of actually stopping the investment process. Those who don’t have an investment plan running should actually start investing so that they can enjoy the benefits of the lower equity prices prevailing at the moment.
Most investors only see the amount invested and how it is suffering a hit, but this might not be the best way to approach the matter. Let’s look at it the other way around. If an investor considers the amount that is still to be invested, the situation becomes an opportunity that one should never overlook. Continuation of the investment process is an effective way to confront difficult situations. Stopping it at the halfway stage is a negative approach because it means the investor is confined with a higher cost while not being able to benefit from the current low prices.
Every investor should make an effort to see if they can make use of the situation to direct more investments towards equity. This should be done from additional savings and not necessarily from an asset reallocation perspective because it will lower the price. But they should remember two things. First, investors must remain patient because it can take a long time before we again witness some rise in the value of equities.
Secondly, one also needs to ensure that the quality of investment is proper otherwise it will run the risk of throwing good money after bad things. This is where mutual funds come into the picture because they offer investors the good option of letting the experts do all the hard work for them. All they need to do is remain disciplined.
(The writer is a CA and certified financial planner. This column
appears every Friday)