How to Weather Market Storms?

What are effective strategies to minimise the impact of downturns on a portfolio?

There's no easy way to reconcile with the current market downturn. If you started investing 6-8 months back and have invested a large sum, then it can be even more jarring. On Friday itself, there was a fall of 4 per cent.

If you have a large sum invested and your portfolio is down by 25 per cent - this can be difficult to deal with. The only way you can come to grips with the reality that the market rises and falls is to keep investing. Also, you have to come to the realisation that if you don't need this money soon, the impact the market fall has on this money doesn't matter in the short run.

In a couple of years, the market will rise again. You'll have to wait. The simple idea is to buy cheap and buy again when the market goes up dramatically. It is to keep investing through every phase of the market.

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Why is chasing hot stocks or sectors risky, and how can it be avoided?

Investing is an optimistic act. You invest to maximise return, not lose less. However, in pursuit of higher returns, most investors choose non-diversified vehicles that are slightly concentrated.

While such investments would have done well in the recent past, they are expensive and lack any growth opportunity. If these investments haven't come crumbling down yet, they will in a quarter or a full year or so.

People who get into such investment ideas are usually naive and gullible. They are enticed by a compelling narrative that pushes these investments forward. Instead of doing their SIPs regularly, they try to time the market, thinking a more sophisticated approach can help them generate more returns. However, nothing is more important than averaging out your price.

If you've made such a mistake with an IPO, this can prove even more costly. For instance, if you've got Paytm or Nykaa in your portfolio from the IPO, you'd be almost 40 per cent down. This can be nerve-wracking because you're non-diversified at this point.

So, the key is to have a diversified portfolio. And do your SIPs in investments that give you a broader exposure to the market rather than going for sectoral ideas.

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How crucial is the right investment mix for a resilient portfolio?

It's very difficult to find the right mix because it varies from person to person. The right mix depends on three factors: experience, time frame and how critical that money is.

So, the simplest rule is that you need diversification at any cost. Instead of going for a thematic fund, choose a fund that grants you exposure to a lot of the market.

Start doing your asset allocation once you have built a savings of five years' worth of income. Once you've built a meaningful sum, it makes sense to include some shock absorbers in your portfolio.

If you're building a fixed-income allocation in your portfolio, it won't tick all your boxes. When the market corrects, it will protect you from the downturn. However, in a rising market, it won't build wealth as effectively as equity.

The simple rule for rebalancing and asset allocation is to avoid doing it compulsively. Instead, you have to focus on doing it on a yearly basis. This is because of two reasons: tax and opportunity cost.

For instance, if someone had a 75-25 (equity-debt) portfolio in 2004 and kept rebalancing every six months as the market kept going up. They would have missed out on a lot of growth by selling off equity in the rising market.

It all comes down to doing the same old thing: diversify, invest for the long run, and once you've built something meaningful, make sure you're allocating it to more conservative investments, rebalance and never forget to diversify at all times.

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Viewer's Question

My mother and grandfather invested in UTI-Unit Growth Scheme 5000 in 1995 and forgot about it. I recently found that investment paper. Please let me know how to redeem this amount and what is the current name of that scheme. - Bijay Gupta

Two or three funds were launched by UTI, and they were not meant for all investors. They were meant for only Unit 64 investors. Unit 64 was India's largest fund in the '90s. It started in 1964 and became a very large fund. UGS 5000 was an equity fund that was launched and it was redeemed in 2001. It was a good fund.

Unfortunately, his money is lying idle with UTI from 2001 to 2025. So, he should pick out that paper, visit UTI's office, and get his redemption process started.

Had it been an existing fund and carried over (because it was a closed-end fund), it would have been redeemed in 2001. Whatever money was invested, his grandparents would have received the dividend and the redemption price. That redemption price will be tied to UTI. So, he should trace back that money, and he will get his money intact.

Also read: The incorrect way to make money from corrections

This article was originally published on February 28, 2025.