The equity markets peaked in January; the Sensex touched a life high of 42,273.87 on January 20, 2020. From that peak, in just two months, the market has plunged a mind-boggling 30 per cent and it could fall even more, given that there is still a lot of uncertainty about the Covid-19 outbreak and when it is going to end. In short, the equity markets are not for the faint-hearted. But, it is also equity that has given high, long-term returns. Raghvendra Nath, managing director, Ladderup Wealth Management, shares his thoughts on how to overcome such major events.
Have patience. Markets always bounce back
For somebody who started investing in capital markets three years back, or maybe six months to one year back, this experience is extremely painful; they have not only lost the returns that they had generated, but also their capital is down substantially. But, anyone who has been in the equity market for 10 to 15 years can confirm that a fall like this is succeeded by an equally aggressive move up. The timing of the move up is completely uncertain. For investors who are holding high quality stocks or mutual funds or even portfolio management schemes, remaining patient is the best thing to do now. Markets are down because of uncertainty. The moment that ends, markets bounce back. So, just stay invested.
Increase equity allocations
This is a good time to basically double investments, because you will find markets extremely cheap. The valuations, which used to be there around 2011-2012 have come back. These are basically good times to invest for someone who is not exposed to the market. You should be aggressive on equities because when you are investing at these levels there is a downside, but there will be substantial upside over two to four years later.
Diversify your investments
Diversification is always good. Having multiple asset classes and multiple investments within each asset class always helps you in lowering the overall volatility of the portfolio. We have never recommended a 100 per cent equity portfolio to anybody.
Balance your portfolio
You should always have a balanced outlook towards your investments because you are looking at optimising returns. Equity should find a predominant place in the portfolio of any investor who is under 60 years of age. Rest could be in things like fixed income, gold and real estate.
Ensure some safety
If you are looking for a safe haven asset, look at fixed income. Put your money in a fixed deposit of a strong bank.
Tips for senior citizens
Let us say a person has just retired. Consideration has to be that he has 20 to 30 years to live and in this period you have multiple market cycles. So, having a 30 to 40 per cent allocation to equity is not a bad thing at all. The thing is that this 30 to 40 per cent should remain long-term and people should be able to ride out the volatility and not panic and get out of it, creating a permanent loss.