This has happened for the first time in a decade that Indian investors are witnessing a full-blown bear market. The frontline BSE Sensex index has tanked 30% from its January peak. The earlier peak crash had seen the index lose 60% of its value. Investors had been worried about how big the cut will be this time and how they can protect their finances. Having said that, the reasons for stock market crashes vary every time, the basic tenets of surviving these events remain the same.
The Do’s to protect your investment portfolio
Create an emergency fund The most important step you can take at certain times like these is to create an emergency fund. With most of the industries being shut and the market falling, the economic slowdown is expected to affect one’s returns negatively. When investing with the aim of earning profits in the future, it is essential and also equally crucial to safeguard your present with an easily accessible liquid fund that can be used in case of an emergency.
Choose well-established names over smaller businesses An important thing to note about the current market conditions is that the slowdown is not a result of economic fluctuations. Unlike most of the previous episodes of recession and depression, the reason for the existing crisis is a pandemic. This may not be the right time to place your bets on small names, instead, stick to established company stocks that have a higher chance of being untouched by the current wave.
Evaluate your risk appetite With a high probability of losing a job or facing a pay cut, you may want to look at your risk appetite again. At large, a person’s risk appetite is dependent on a host of other factors like their gross income, future goals, career prospects, and market conditions. Considering these aspects take a hit, you should lower the risk from your portfolio too. Risky ventures like short-term trading, etc., could be dangerous to your financial well-being in such a volatile market.
Stay ready for when the market recovers A bear market can be scary for many investors, causing them to withdraw their money. While on the one hand, a bear market is not the best time to invest your money, you must understand that the market will eventually recover. One must be vigilant and
time the market during these times to know when you need to get back in. The market has always been a fickle place that changes quickly.
Don’ts to protect your investment portfolio
Do not let fear alter your decisions The constant fear-mongering, news reporting, and social media opinions have created a lot of financial anxiety among people. Nevertheless, it is vital to note that the market does not function in the same way as an economy. Always acknowledge that the stark fall acting around you may just be noise and maybe acting on it rashly can be more threatening to your portfolio than you think.
Do not be bothered about the falling figures Your investments may all be in red at the moment, but you must recognize the fact that you will not experience a loss until you sell them off. Most investments have been made with a long-term view. Always try to keep your emotions out of the equation and not be depressed over the falling numbers.
Do not shy away from diversification Diversification is more important than ever in a bear market. One should never limit one’s investments to a particular company, industry, or currency. The coronavirus pandemic would not have the same repercussions in all sectors. “For example, even though airlines have suffered a considerable loss, essential commodities, healthcare products, etc., are still high in demand. No two stocks react the same way to the market, which is why diversification can be the key to avoiding any type of risk or pitfall.”
Do not cash out Even though stocks are riskier than long-term bonds, they are still more effective in beating inflation. However, cashing out on your stocks right now will not only bring you heavy losses but also take away the opportunity of recovery when the market gets better. It would be better if you let your investments be, for when the market recovers, you can turn your losses into profits.
– Vedika Mansukhe
Content Writer
