Seesawing of stock market is a universally known truth which yet remains aggressively unaccepted by numerous investors. The thing to realize is that market volatility is inevitable. It’s the nature of the markets to move up and down over the short-term. Trying to time the market is extremely difficult. One solution is to maintain a long-term horizon and ignore the short-term fluctuations.
Below are some of the dos and don’ts that an investor should keep in mind during volatile market scenarios.
|Establish the purpose of Investing
|Have an emergency fund
|Remember volatility is inevitable
||Follow the herd
||Leverage your position
|| Stop SIPs
Volatility can also have varying influence on an individual depending on his age and/or risk profile. The favored course of action would be different for each of the groups.
For an individual who has just started out and has a long-term financial goal. Momentary changes in the stock prices will have insignificant effect on the financial plan. At this stage of wealth accumulation, it is in fact an opportunity to invest at lower prices and also an opportunity to diversify your portfolio. It is advisable to take no adverse actions and rather focus on the long term investment plan .
For a middle aged individual, between 30s-50s, selling at the bottom of the bear cycle is a folly. Most investors in this age bracket have about a decade more to retirement, which is a sufficient time frame for the markets to recover .It is advisable to have a balanced portfolio so that losses from one asset class are cushioned by the profits made in another asset class and for those who are not in the accumulation phase, It’s a good time to review your portfolio and make needed changes to fit your goals and risk appetite.
Individuals who are close to retirement or already retired, mainly in the age bracket of 60s – 70s, it is of paramount importance to preserve the corpus created. To avoid severe corrections in the portfolio value, it is prudent to park most of the corpus in debt instruments which are more stable and generate a regular inflow of income.
Volatility in the stock market is like monsoon in Mumbai. The occurrence is inevitable; it’s only the timing and sheer magnitude that remains unknown. Even though one has witnessed floods in some years, the probability of it lasting for a long term is negligible.