Investment is a tricky business in the best of times and involves a certain amount of risk. The COVID-19 pandemic slowed down the economy, making investments slightly more tricky. In this unprecedented situation, our normative investment strategies might have all been thrown into jeopardy, leaving us confused about what to do.
But the extreme climate incidents, reports of Zika, and other deadly variants of SarsCoV indicate that uncertain times are going to certainly be more common for us. But when everything goes south- what should your investment strategy be? Despite different reasons for markets crashing, the methods for survival are largely commonsensical and similar over time.
What should your investment strategy be?
No matter how unprecedented this situation feels, markets go through turbulence pretty often. Markets always emerge stronger, sooner or later because humans are resilient, and whatever slump happens gets compensated by things like vaccine optimism in the current context or in general, a push to build back after weathering a storm. So, the first thing to learn is how to study the situation and hold onto your investments if needed because the tide might turn. If you have the scope- now is also a good time to invest more. Given that the market is lower because of uncertainty, you could add to your equity portfolio at a lesser expense than what would happen when the market is on the rise again.
Try investing in long-term plans. Based on your investment objectives and risk affinity, you can consider investing in hybrid equity funds of growing and strong companies because they are more likely to survive the uncertain period. Diversification is also a very good idea, spreading out your investments into some low-risk securities as precious assets help in securing your investments. While it is good to invest now because stock prices are low, it wouldn’t be advisable to go on an unconsidered investment spree without doing ample market research. Your best odds are to invest in the kind of stock that has long-term promise and is of a good growth trajectory.
SIPs are designed to withstand volatile markets, therefore aside from your emergency contingency- make sure you have SIP as a backup for keeping yourself afloat.
The need for assurance and safe choices can also push you to go back to fixed deposits in the bank. While that is not a bad idea, one should consider the taxation charges involved in fixed deposits and take that into account before making any decision. The overall investment strategy should ideally be based on overall investment objectives and how the assets allocated are performing in it. In uncertain times, make sure you are reviewing your portfolio in more frequent intervals and remove potentially lagging or poor quality investments to secure your financials.
Moreover, there are behavioural outlooks that need to be established before we go into more detail about what could be an effective investment strategy.
- Don’t Panic- Don’t sell out in a panic just because there is uncertainty. This is the number one reason for loss when you don’t think it through and your behaviour, in turn, affects market behaviour as a self-fulfilling prophecy.
- Rely on Expertise-Which is why it is best in an uncertain situation to bank on those who have training and expertise in trading and stock markets.
- Maintain Discipline with your strategy- Finally, don’t follow the herd and panic buy or sell without understanding how it affects your own investment objectives or gains.
Factors to take into account while planning an investment strategy for uncertain times
- The uncertainty is not absolutely new. There is always a degree of risk in investment, therefore the market is designed to weather this form of unpredictability.
- It is common for investors to shift from equities to more fixed assets like gold and precious metals during an uncertain time to guarantee the safety of their assets. However, this move immediately results in a depreciation of the stock value and causes further instability.
- This uncertainty on a broader level affects the whole economy- changing oil prices or capital values. At the micro-level, it focuses on individual companies and individuals and how they deal with it.
Your biggest asset in uncertain times is the acquisition of knowledge. As long as you are aware of what is happening around you and keep yourself updated about markets, you can keep improving your investment strategy and hedge your bets based on the market at that moment.
Two key strategies:
- Be ready to take unexpected chances and opportunities. Crisis breeds the extraordinary, and as an investor, you should be prepared to take full advantage of it. There is nothing wrong with treating the uncertainty as an opportunity, looking for sectors that would be big post-pandemic and investing in them. It is not that easy to part with capital when everything is so risky, but it can really work out once things stabilise to a certain extent. However, those who are very averse to risk, should probably consider moving to safer options or just not shifting at all. It all comes down to what your investment objectives are.
- Diversification is a tactic that is used to protect investors from regular market uncertainty. When the uncertainty has been heightened like during COVID, the investment strategy is going to have more value. This means investments are spread over different asset forms, across a scale of risks and categories of funds in order to keep the portfolio afloat even if a particular part of the market suffers a blow. Investing diverse doesn’t just mean in terms of the type of securities. In situations like this- it is also smart to invest in different regions as well as different sectors in order to insulate yourself from macro risks arising due to global market behaviour.
