“Bull or Bear?” A question in everyone’s mind today!
Greetings! Hope you and your family are keeping safe!
With the scare and panic of Covid-2019 spreading all over the globe, this being an unprecedented scenario in which the whole world seems to have been taken by shock with no solution in sight yet, it’s extremely important to stay calm and take rational decisions for our physical and financial well-being.
All of us know the famous saying “ Health is Wealth “ Thankfully there is a lot of work being done by renowned spiritual leaders for combating issues like stress / anxiety through various techniques like yoga and health professionals like doctors and nutritionists through right eating habits and immunity boosters, unfortunately there is not enough awareness spread for the wealth immunity which is equally important. Retail Investors, HNI’s and corporates today need to manage cash flows like never before as the current indications are that the
economy and markets could take anywhere between 1 – 1.5 years to revive and it will test a lot of patience for all participants.
Having an experience of over 15 years into the financial markets and seen enough cycles, in this article, I am neither discussing macro level issues like corporate earnings, inflation, currency movements, crude oil movement etc. nor any micro level issues like market levels, real estate prices and stock prices as we all have read enough articles published in newspapers and business channels where indications of movements of the same have been discussed at length. It’s a fact that none of the financial experts know the magnitude and duration of the problem yet and calling it either a “depression” or “temporary phase” will be a futile exercise for now.
All I have tried to do is simplify the action plan by Dividing into 2 parts which will cover all your doubts and help you ensuring your financial well-being in the coming years:
Existing Investments – 5 Key Points
- Don’t Panic, Over Analyze and Exit:
All existing investments made in the last 1, 3 & 5 years into real estate, equity oriented mutual funds & stocks which is either down or at par should not be disturbed. All instances of the past like 1992, 2001 & 2008 have shown that one who doesn’t panic and stays put, eventually recovers the notional losses. Remember, volatility is the price we pay for higher returns. Looking at portfolios/stock prices daily won’t help at this time as the current valuations have factored in extreme distress and won’t show the real picture till the panic is over.
- Less Is More:
Lower your return expectations. Given that that this problem has taken us back in time due to a structural damage of few companies and sectors, returns that one would generally make in 3 years might well take 5 years now. Assume X amount invested for 3 years with a return expectation of 30% absolute returns, the same 30% now might take 5 years taking your annualized return from 10% to 6% p.a.
- Tax is an expense:
Given that dividends are now taxable in the hands of the investor, anyone who falls under the tax bracket of 20% and above should go for growth option into mutual funds.
- Continue your SIPs:
The power of rupee cost averaging has been proven n number of times in the past and averaging at all levels shall surely recover faster.
- Don’t Churn too often:
Often we get carried away by returns published in newspapers, funds recommended by friends/relatives and start changing the portfolio basis the same before the required time horizon for desired results. Kindly refrain from the same as the damage in doing so could be irreversible. Every person’s risk-taking ability is different and its been proven that the same fund/stock bought at different times has given extremely contradicting results. Once bought, stay put till 3-5 years unless something fundamentally wrong with the fund/sector.
New Investments – 5 Key Points
- Have enough Liquidity & Don’t be lazy:
Keep enough liquidity for unforeseen events into short term Fixed Deposits / Liquid Funds / Arbitrage funds & future opportunities which can be redeemed anytime and earn you better interest and are more tax efficient than your savings – current bank account. It’s time for ensuring that while you are locked down, your money in the bank isn’t locked and is earning you the maximum possible returns with no risk instead of sitting idle at 4% taxable returns.
- Pay off your liabilities :
Once the liquidity is taken care of, If you have surplus in your bank account and getting your income as usual, It’s important to clear your liabilities like home loans / car loans / other loans in tranches through part payments as that saves 8-9% of interest payable to the bank every year.
- Buy at the right time:
While prices look really attractive, do not get tempted to invest in a hurry without understanding the risks associated and only buy if your time horizon is at least 5 years and is in line with your asset allocation after discussing it with your financial advisor. Making investments in small tranches is the best way to construct portfolios.
- Don’t be Greedy:
It’s important not to get tempted and subscribe to products which are low in quality like debt funds with AA Papers or below and low rated Corporate Fixed Deposits / NBFC’s which are still yielding double digit returns and look extremely attractive.
- Don’t put all your eggs in the same basket:
If you or your financial advisor has not done asset allocation and put all your funds into one category, it’s time to have a detailed discussion to restructure the portfolio post the recovery happens to ensure one is not stranded with one asset class in such extreme times. All new investments should be well diversified across asset classes.
Talk to us
Feel free to contact me over phone, email or whats-app me to discuss your existing portfolios and I can help you taking informed decisions and discuss the available options as on date.
Vishal Govindani
Partner – S.V. Financial Services.
Independent Financial Advisor, MBA – Financial Markets.
Mobile: 9820175411 | Email: svfsmail@gmail.com
“Remember that this too shall pass & successful investing needs courage”