It would have been easy if one had the ability to gauge the market ups and downs before even deciding to invest in stocks. But that’s not the case, as it’s not an easy task to decide what would happen to the stocks tomorrow.
Even when the market is uncertain, there are certain ways to estimate the market from the wide option of expertise readily available now. They are many cases that we should have come across who have really burnt their hand investing in stocks without proper planning. A thorough understanding of the market situation and in-depth knowledge of the stocks and the company history would help to make a more stable and wise investment decision.
Nobody wants to be caught in a bearish market. The idea to stay proactive in your financial plan is the best way to address the situation. It’s quite essential to revisit our financial goal and assess the need to invest. Here are some of the strategies one can look at before they move to invest during a turbulent time.
Just like one plans to buy a house or a car, which involves proper construction sale and negotiation, a sound financial planning also needs a good amount of negotiation between the investor and the market.
Assess your capacity for risk
Before one decides to invest, like how all fund managers do while investing in a particular portfolio, we as individual investors also should asses the amount of risk one is ready to bear. The risk tolerance varies from person to person. So if one is willing to take a risk, then it will be useful to re-evaluate your financial goal. Understanding the risk tolerance makes you avoid certain bad investment decision, that will make you less apprehensive.
Draw a personal financial roadmap
Before bouncing into an investment, it is highly needed to take a back seat and make a financial plan for yourself. This is similar to job hunt, where we tend to take some time in deciding how to get a construction job. Either oneself can do financial planning or we nowadays have the option of getting a financial planner or advisors who can guide us on this. Financial planning should be both for the short term and long term.
Understanding your risk profile and the kind of money that you can invest, determines the financial goals. If we have a clear roadmap, as to which to stock to invest and when they are sure to bring in fruitful results.
Consider an appropriate mix of investments
It’s always good to have investment done in a more diversified way. A perfect portfolio mix with equity and fixed income securities can help one to balance the risk impact. Equity instruments have higher risk when compared to bonds and liquid funds. A proper asset allocation is the backbone of any strong investment.
Market conditions keeps varying and if the investment is spread across different types of instruments, then the high and the low can be capitalized. A steady and stable investment makes the investor less anxious and can reap better return in the long run.
Leveraging, also known commonly as margin trading is a system that allows investors to project more than his capital. Every company does that especially construction companies who try to see how to grow a construction company. Leveraging is a very sensitive tool, and if not used wisely, it can cause heavy losses than gains.
This is very common among the brokers and traders wherein a strategy of the borrowed fund is used to increase your return in investment. Margin investing and leverage can yield good returns but also has the other side of the coin. The market is not always bullish, so if one decides to take a leverage position, then be also ready for a bearish market. Leverage may bring in higher return, if the market moves in the right direction. So leverage has its own pros and cons and once has to use it only if they able to predict the market condition.
Look at your cash flow needs
As discussed earlier, there are short term goal and long-term goal in any financial planning. If the goal is a short term one, then there is an urgent need for investment and the risk-bearing limit would be very minimal. But if the goal is for a long-term return, then a larger space to take more risk for higher growth.
So depending on the need of the situation, one can decide whether this current market situation would be beneficial for them or not.
Stopping SIPs because of the fall
It’s not the right decision to stop the Systematic Investment Plan (SIP) when the market crashes. Because it is during the Market lows, SIP does its real magic. When the market comes down, the investor doing his SIP would be most benefited. He would in turn buy more no: of units with lesser price than the normal market condition.
So it’s always advisable to keep your SIP going both in the bullish and bearish market as SIP benefits in both situations. For the initial stage investors in SIP, its highly needed that they hold on to their SIP for a long time to get the purpose of the SIP.
Do an emotional gut check
Your emotions should not drive your investments. It should be the financial goal that should keep you moving irrespective of the market conditions. Markets are volatile and never steady and its because of this unique feature, that one is able to get the best returns. So never judge any investment with the present emotional gut but think over a long run.
Investing in the stock market is always challenging, time-consuming job, and the best wealth creation tool any investor could think of. But if this is done correctly, it can bring in a lot of benefits in terms of wealth appreciation and also redefine the risk-taking capacity of an individual. It is always necessary to rebalance your portfolios to understand the market and invest accordingly. A good investment can be made at a younger age as the amount of money that can go in is high. These strategies would definitely give you an insight as to the right time to make the right investment decision.