The Sensex is hovering close to 33,000 points and the Nifty above 10,000 points, at the time of this writing.
The government bond yields are also inching up. The number is now close to 7% from 6.6% in Sept 2017.
Almost everyone I speak to believes that the markets are frothy and they can correct or crash any time.
What will trigger the crash or correction? Unfortunately, no one knows.
Will it correct or crash? Again, no one knows.
There are several pundits predicting a crash. Some experts are even talking that since the fixed income side (the bond yields) have become attractive, the stock markets need to correct.
You see the market has its own mind. It doesn’t care about what you think.
So, what do you do? If a crash happens, will your portfolio survive or die? How do you prepare for it?
Good questions to which I repeat, yet again, my same answer.
Control what you can, which is your portfolio composition. Not what you can’t, which is the market.
Coming to the portfolio part, let me share with you a very relevant piece of advice from Ben Carlson, who recently wrote on similar lines in one of his blog posts at “A Wealth of Common Sense”. He says: (highlights are mine)
Avoid extreme positioning.
All-in or all-out can make you a hero if you’re right, but that’s no way to stay solvent over the long-term. Planning for various market scenarios is intelligent behavior when you’re dealing with an uncertain future. You don’t get to hit as many home runs this way but you also avoid striking out. The thing that makes an extreme stance so untenable is that it’s psychologically challenging. You could try to sidestep every single potential landmine that exists on the calendar or you could try to create a portfolio of investments that is durable enough to handle a wide range of outcomes.
If I were to break this advice down into simple action points, it is:
- Understand your risk profile
- Manage your portfolio risk
- Run various scenarios with your goals, savings, inflation, expected returns
- Decide your asset allocation (spread of your assets across instruments) and review it periodically
- Don’t chase returns
- Avoid market news and forecasts
- Watch your mind
Decoding “all in or all out” – it is possible to earn a decent rate of return on your investment with a diversified portfolio and yet achieve your goals. 100% stocks or 0% stocks are not the only 2 scenarios.
You don’t have to be in a situation where the market high or low makes you jittery and compels you to take decisions that work against your goals.
So, how are you preparing your portfolio for a market crash?
One way is to come and attend my investing workshop. The first one is is Bengaluru on Nov 25, 2017. Click here to know more and register. Limited seats!
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