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What should be the investment strategy for a bear market?

Dhirendra Kumar explains how sticking to your asset allocation plan can help you benefit from a big decline in the market

You usually suggest spreading the investment over two-three years if one has a big lump sum to invest. Likewise, what should be the strategy if someone comes across a big downside in the market, say a 10 or 20 per cent correction?
- Akhil Raj

Yes, I normally say that you spread your investments over time. There isn't a thumb rule here for doing this. It normally keeps your anxiety in check. Because the moment you invest a large sum of money in the market and you're faced with a big decline, it's a big dampener and it scares you. Many times, if you are not an experienced investor, it can drive you out of the market. So that's the primary reason.

With regards to 'what to do' or 'how to benefit from a big decline', that is the reason why you should have an asset allocation. Assuming that as an investor you have chosen to have an asset allocation of 50 per cent into debt and 50 per cent into equity and if there's a 10 to 20 per cent decline in the market, your equity will immediately decline in value. That is the time when you should move your money from fixed income to equity and rebalance your asset allocation. That is how you will benefit a little bit from that sharp fall.

Maybe that is the time when you can decide if you want to, so to say, 'adulterate' your asset allocation formula a little bit and you think that you can carry on and sustain with it, then maybe make your equity at 55 per cent instead of 50. However, don't do it in a knee-jerk way and go overboard. Most of the time, sticking to your asset allocation plan and calibrating it a little bit can help you benefit from the big decline that comes in the market.

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