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Keep calm in a volatile market and rebalance as per your goals
Published On , 9 Feb 2016 By Times Of India
Since the beginning of 2016, the stock as well as the Debt market has witnessed extreme volatility, making a lot of investors jittery thinking what will happen to their investments. There is reason for investors to feel jittery: The sensex is now down about 6% from its 2015 close while the 10-year benchmark yield has gone up since then. In such situation, financial planner and advisors say, investors often try to exit their investments, which may be premature, since they don’t know what is in store for them. In some cases, investors procrastinate, that is they delay their decision to make fresh investments. Both may not be the best of the strategies for long term investment Goals, they say.
The root cause for these types of investors behavior is that investors always try to maximize their returns by timing the market, said Ashish Modani, founder, SLA Investments. Investors don’t realize that several historical analysis have shown that leave about common investors, even star fund managers can not predict the market with cent percent accuracy every time. So trying to time the market may be a futile exercise.
“They should realize that rather than maximizing returns, they should try to settle for a decent return. If they are willing to settle for a decent return, in the long run that will make them richer by 99% of the people around them,” Modani said. “The moment you try to maximize returns, you go for an entry and exit strategy. Some people even try to time the market with their SIPs (systematic investment plans),” he said.
According to Modani, the problem is with investor behavior and the question is how they should behave in situations like these. “Here comes the distinction between controllable and noncontrollable factors. There are factors like markets, interest rates etc. which are noncontrollable factors for an investor. So it’s better to not bother much about these factors. On the other hand factors like trying to time the market, existing all of a sudden, panicking etc. are controllable factors for every investor,” he said.
According to financial planners, every investor should plan, set financial Goals for every investment they are making, with a clear time frame when they want to achieve that Goal and then invest in a disciplined manner to achieve those Goals. Uncontrollable factors could come in between those years before they reach their Goals and try to derail their financial plan, but in such situations they should rebalance their portfolio and re-align their plan to suit the marke t realities. “ Investors should set Goals for their investments and stock to those Goals. And if your Goals are decades or more in the future, you should invest in equities. However, if your Goals are months or a few years into the future, then you should stick to other fixed income instruments,” Modani said. Even if there are volatile phases in the market, retail investors should stick to their plans and keep on aligning their investments to their Goals, financial planners say.
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