One of the things that investors need to remember while investing is that the market is very unpredictable. If the market is performing well, they will also enjoy the profits of investing in a SIP. Conversely, if the market is going through a bear phase, then investors may be cautious about investing in the market. Investors should try to be calm during such turbulent times and avoid doing things like timing the market or making reckless decisions. Doing those will help the investors, make the right investments, cushion losses and at the same time achieve their financial goals. Listed below are some of the steps you can take to remain stress-free when the market is going through a volatile phase:
- Analyse the market:
If you are an investor and the market is currently going through a bear phase, instead of pulling out, please analyse the market. You also need to check why is there chaos amongst investors or suspicion amongst potential investors? At the same time, please make sure to know what market correction means. While most investors associate the market correction with market volatility, volatility can be defined as the interruption in the upward market movement which is caused by a temporary price correction. It is important to remember that volatility does not mean that the markets will not rise again. Instead, it just takes some time for the markets to bounce back. Generally, market corrections occur when the prices of equity keep falling and investors end up in panic selling. This is often propelled by geographical or political turmoil or any natural or manmade catastrophe.
- Don’t panic when the market is going through a bear phase:
As stated earlier, a market going through a bear phase often persuades investors to redeem their investments. It is important for an investor to realise that market correction is a temporary phase, and it will soon pass out. To put it simply, markets are akin to cardiogram or life; they have their ups and downs, but with time springs back. If one were to closely analyse the market trends, there have been ascending and descending movements of the market again and again. For instance, from Oct 13, ’10 to Dec 20, ’11, the Nifty 50 Index saw a price correction of 27%. However, the Index bounced back from the bottom of Dec 20, ’11 to Mar 3, ’15 by 98%.
- Consult a financial advisor if you are still unsure:
If you’re still unsure whether to keep investing when the market is going through a bear phase or to redeem your investments, then you must definitely consult a financial advisor. You should do so because they have the experience and brilliance to help you with not only making the correct investment decisions but also helping with resisting your temptation to redeem during a market correction. Their counselling plays a strong role in your journey to create wealth without worrying much about volatility in the market.
- Diversify your investments:
When a market is going through a bull market, investors usually make the mistake of assuming that the situation will remain the same throughout, not thinking much about the bear market. It is important to remember that market movement is cyclic, and investors should have a realistic plan in mind while investing and also be prepared for all kinds of market movements. This is precisely why investors are often suggested to not put all of their investments in one asset. Instead, it is better to follow a diversified pattern of investing. Diversifying also helps in potentially reducing the overall risk and avoids investors to be hysterical during a market correction.
- Focus on the bigger picture:
The most important reason behind investing in something like mutual funds is to accumulate wealth and achieve your financial goals. However, when a market is going through a volatile phase, it is understandable that one will be tempted to redeem their investments. However, by doing so, they are forgetting about their financial goals. They choose to redeem their investments because they conjure an image of the calamity in the market and that steadily takes control over their minds pushing their financial goals out of focus in their list of priorities. It is of utmost importance for investors to be firm about their financial goals and hold on to their investments till they realize the same. If one stock or fund is underperforming, that does not mean you fret over it and discard it. You chose to invest in it because of certain goals you aim to score and hence, deviating from it won’t help you at all.
Following the steps above should help you to accumulate wealth over time. Therefore, instead of redeeming the allocation of your income into investment plans, you should be patient and give your portfolio the time to grow.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.