The correct investment strategy to follow during stages of market volatility

The correct investment strategy to follow during stages of market volatility

Unexpected possibilities of life are now coming true. Nothing is like what it used to be. From changes in lifestyle to that in the standard of living, government policies, company policies, market volatility, investment strategies, and market behavior, the world has turned upside down. 

This is also the time to rethink your investment strategies and reconsider your portfolio. No one can now predict the market conditions from now on, so it is best to avoid unrealistic returns as well. If you do have some running SIPs and are planning to pause or redeem it, answer a few questions first, before going ahead to take any decision. 

Why did you start the SIP in the first place? Was it for some short term strategic decisions, or to time the market? Or was the intent to save and accumulate wealth?

If the reason for investing was to build wealth for yourself over some time, you have every reason to rejoice. The cost of purchase per unit is low now, which means that with every investment in SIP that you make, you get more units, which will leverage the effect of the sinking market to your benefit. 

Here are answers to some commonly asked questions about SIP. 

  1. Should I pause my SIP, or even stop it altogether?

If your answers to the above questions were positive, there is no need to stop your SIP. Try and cut some other overhead expenses if you can, so that you can continue to run your SIP (given that the fund and category have been prudently selected). 

  1. Should I reduce the amount for my SIP?

That would not be a wise decision. Instead, reduce the other expenses as much as possible. 

  1. How long should I continue my SIP for?

Continue to run your SIP for the same period that you had earlier decided on. 

  1. Do I need to reshuffle my portfolio?

If your initial funds were properly selected under the advice of a proper expert, there is no need to panic and experiment during these rough times. It is also advisable to keep a close watch on the recovery pattern of your funds. In case you observe some abnormality in your funds return recovery period, when compared to other similar funds, you could think of reshuffling, but at a later stage, and only with proper advice. 

  1. Can I invest based on past return history?

Past return history should not form the basis for future investments. Past returns always come with their own set of market factors that prevailed during that period, such as inflation, market situation, government policies, global market, climatic conditions, industry base, natural calamities, and many more. Given that we have been hit by a pandemic right now, things will not be the same. 

Past market crash history

The crash of 1992 was perhaps the largest fall in all our history, due to the Harshad Mehta scam. The market also crashed in 2000 due to the South East Asian crisis and the dotcom bubble, and then later on in 2006 and 2007. It also crashed in 2008 when the BSE fell by 1408 points, which then led to one of the largest erosion of investors' wealth in the market. 

History bears testimony to the fact that the market always recovers after every deep sink. Even after the global crisis of 2008, the equity market raised and has shown tremendous growth ever since. And it was the long term investor who gained the most out of the situation. 

SIPs work the best when market conditions are volatile. If you stop SIPs when the market is down, you then also miss out on lowering your total investment cost. On the other hand, if you increase your SIP amounts when the markets are on the rise, you then keep averaging the overall cost upwards. 

What forms the bridge between goals and accomplishment is discipline. Thus, make sure that you follow discipline in investment since SIPs are all about discipline.