Lockdown lessons: Stay invested, even in the face of a pandemic
The coronavirus pandemic has pulled the rug from under our feet; in no time, things have turned around. With a rise in the number of cases, there is a palpable fear about when things will get normal.
While the circumstances around us have changed, our goals remain the same, whether it is the future of our children, retirement or buying a house. Therefore, it is important to focus our energies on investment, even when the scenario seems rather bleak. Markets regularly go through cycles like these, and it is predicted that the current market correction can be viewed as an opportunity to invest for the long term.
Time is the best healer. While the situation is grim at present, that doesn’t mean things will not recover. On the other hand, this is the time to utilise your savings effectively.
Assessing the current scenario
Currently, a huge impact is being especially felt when it comes to the wealth of equity investors - this is not dependent on if they have chosen to invest through mutual funds or direct equity. The nature of both is different, by default - while direct equity investors are all about taking high risks, mutual fund investors take on market-related risks.
In India, equity mutual funds invest across sectors in sync with the economy, which is why making investments in these sectors is much safer than direct equity.
According to Sneha Joshi (44), a corporate professional, investments have taken a backseat. After having made huge losses due to the market downturn, she reached out to her advisor, who then suggested they increase the amount in their SIP.
“While everything else has taken a hit, SIP or Systematic Investment Plan is a safer territory. Like many others, I decided to stop investing looking at the situation, but decided to stay on. For me, my biggest goal is to have enough money for my daughter’s higher education, and SIPs work well,” she adds.
The importance of staying invested
Speaking of safe investments, SIPs are considered beneficial for long-term goals such as retirement, children’s education and wealth creation. By design, they are capable of handling even the sharpest corrections in the market. These corrections will aid in averaging costs, which is why it is important to stay invested in SIPs.
Since 1986, the market has been bearish, at least six times. On an average, the time taken from a peak to a trough stands between four months and 27 months; this also means the recovery is dependent on that, and takes about six to 32 months. One point to keep in mind is if the time taken to reach the trough is quick, then recovery is quick. As of now, we have no idea if the correction is over or not. But with the dynamic nature of the situation right now, it seems as if the recovery would be quicker.
Anoop Sachdev (61), a retired corporate professional, feels that one could also consider investing in pure large-cap funds (in a staggered manner) during every major dip in markets. “With the help of a market expert, I decided to invest in large-cap funds, only because they will bounce back quickly, as the market conditions get better. That’s not all - the past returns that have generated due to major corrections are pretty good, so this seems like a good plan for sure,” he says.
Since he is a retired professional, he has certain goals in mind that need to be fulfilled, which is why staying invested is a good plan.
Experts suggest that keeping an eye on asset allocation is equally critical. Since several investors today have paper losses, it might be beneficial for them to check if the same can be booked, and instead if fresh purchases are possible or not. This will be particularly helpful for those who can set off gains against losses.
Do not follow herd mentality
Also, every time the market falls, many people think of pulling out their long-term investments, since they think there will be a bigger fall in portfolio values. It’s best not to follow the herd mentality. Keep in mind the situation will improve.
If one does not need money, at least for the next few years, it’s not a good idea to draw out money from equity mutual funds. This is certainly not the right time to redeem units - instead, it must be utilised to add money to equity mutual funds.
While the situation is grave, things will bounce back. Eventually, the economy will be much stronger and things will come around with a force. But we need to exercise patience right now, and stay indoors to flatten the curve, and stay invested in our long-term goals.
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