Stock Markets have been in sort of a free fall – cracking up almost every day. Your investments are bleeding. The bluechip fund doesn’t appear bluechip any more. It’s all red. Mid and small caps are worse off.
Given our tendency to react irrationally, this can trigger unwanted responses that can harm your long term plan and the portfolio. The worst of them is to sell now and convert your temporary losses into permanent ones.
For the investors in the last couple of years, this seems to be happening. That’s not what you want to do.
Remember, you don’t have to quit; stay put.
This is natural for the markets. It’s just that you haven’t experienced it before.
Now, you have been reading and listening to all the gurus for ages. It is time to follow their sage advice now – to respond calmly and rationally.
In my view, here is the most scientific response to the current market scenario.
- Go back to your financial and investment plan. If you didn’t have one, build now. You will amazed at the clarity it brings to your investment decisions. Read more.
- Check your required asset allocation (including all assets, not just stocks or MFs)
- Now, check your current asset allocation (including all assets & investments)
- Is there a significant deviation, say +/- 10%?
- If yes, rebalance. Move investments to the deficient investment to bring it to the required allocation.
- If no, then just let it be. Read something, learn, watch a movie, go for a trek or just walk.
Rebalancing example – In the current scenario, if your fixed income allocation (PPF, EPF, Debt funds) is looking higher than desired, then move money from fixed income to equity (via stocks or MFs).
I would say this is the most scientific response that you can give to the current market scenario.
Believe it or not, this is also the most rational one with respect to investment management. No emotions involved.
This should have been read earlier but still: Is your Portfolio ready for a market crash?
Still feeling uncomfortable? Then speak to your advisor.