Here are the answers to a few of the most frequently asked questions Value Research has been receiving
25-May-2020 •Omkar Vasudev Bhat
Market rallies and downturns tend to displace us from our comfort zones. All of a sudden we feel the irresistible urge to 'do' something. In market rallies, the FOMO (fear of missing out) factor is at work. When you see your neighbour getting richer by the day, it's hard not to act. Ditto for downturns. When you are becoming poorer every day, the urge to act is even more urgent.
Value Research has been receiving queries from anxious investors, who are wondering what to do.
Here are some top questions:
Should I discontinue my SIPs?
Short answer: No
By their very design SIPs help you invest across market phases. This helps you average your investment cost. Your SIPs in the current times will help you lower your overall investment cost, thus boosting your returns over the long term.
Should I start an SIP?
Short answer: Absolutely
Any time is a good time for starting your SIP. You don't have to wait for a downturn. If you do, you may have to wait for long, which may result in a lost opportunity. By their design, SIPs help you average your investment cost. So waiting for the right time to start them is pointless.
Should I invest a lump sum?
Short answer: No
In equity, never invest lump sums as you won't be able to benefit from market lows. In the current phase, if you invest a lump sum and the market falls further, you won't be able to benefit from the fall. Hence, invest through SIPs. Spread your lump sum across six to 12 months, depending on its size.
Remember asset allocation is key
In times like these, it's tempting to tinker with your asset allocation. Loss-averse investors may want to shift to debt. Risk-seekers may want to increase their equity allocation. Both actions should be avoided. Your asset allocation is meant to help you fulfil your financial goals while also right-sizing the volatility in your portfolio. Playing with it can derail your portfolio and financial goals. Rebalance your portfolio as per the decided asset allocation. In the current scenario, your equity allocation will have dipped with respect to your debt allocation in the overall mix. It's time to restore the balance by shifting from debt to equity.
Finally, keep your emotions in check
The ongoing market volatility can put your emotions on a roller coaster. The lockdown can exacerbate the situation as you will have more time to follow market movements. Hence, it's all the more important to keep yourself detached from the market. Avoid checking your portfolio too often. Insulate yourself from financial media. If you don't have much to do, read good books, watch your favourite movies or redevelop a lost indoor hobby.
And yes, don't forget to stay safe.