Follow these to keep your money safe as markets panic

Follow these to keep your money safe as markets panic

In the last few weeks, most asset classes were in for a scare. Equities have anyways been battered by over 35% in the last two months, but that is not all. Those who thought bank deposits were safe were in for a rude shock when Yes Bank announced a moratorium on withdrawals. Nobody lost money but the liquidity scare was bad enough. Investors felt secure in debt funds but the instances of defaults by issuers and forced write-offs are becoming too frequent. IL&FS, DHFL, Jet Airways, ADAG Group, Cox & Kings and Yes Bank, all happened in quick succession. Finally, if investors felt smug about gold, that has also corrected 12% in a short span of time. The big question is how to keep money safe as markets panic. Here are five ideas to pursue.v

Don’t lose sight of your long term goals

Behind all the mayhem you need to realize a simple fact. Your goals are not going to change. You still need to retire after 25 years. Your daughter still plans to go abroad for her education after 15 years. You still need to save for margin money for the home loan you are planning after 3 years. Even your plan to create a nest egg and buy a property in a gated community has not changed. When your goals are still the same, your long term approach does not have to alter too much. Stick to your asset allocation and only make changes where there is need to rebalance. For example, the sharp correction in markets may have brought down your equity composition from the stipulated 50% to 35%. You must allocate funds out of gold and debt into equities. Once you have your long term goals in sight, you will never miss the opportunities in such market crashes.

Enhance your emergency funds during such times

An emergency fund is mandatory when you start your financial plan but you may have created a small fund to begin with. Ensure you have around 4-5 months of expenditure in an emergency fund that is almost liquid. Liquid funds are a good option where you can get same day liquidity, higher returns and lower volatility risk. The market crash of 2020 has been driven by slowdown fears in the aftermath of the virus scare. In the midst of such uncertainty, it is best to expand your emergency funding.

Adopt a phased approach to investing

This is not about lump sum investing versus SIP investing. Markets rarely show a V-Shaped recovery after such a violent fall. It will grind lower and the VIX will reduce before markets can bounce back. If you adopt a phased approach, you stand a much better chance of getting your preferred stocks and funds at very attractive prices. For example, if you find HDFC Bank attractive at Rs800, you don’t need to jump in and buy all in one go. Build up your portfolio gradually over the next few months.

Discipline matters more than daredevilry

Most of us agree that auto stocks are infinitely cheaper than what they were two years ago. You are getting most of them 60% lower. But that still does not justify jumping in and putting all your money in auto stocks. The idea is to create a diversified portfolio that can create wealth over the next 6-8 years. For example, people who bought in the bottoms of 2002 or 2009 made tons of money. But had you bought a mid cap software company or an infrastructure company in 2002 and 2009 respectively, you would have been sorely disappointed. That is where discipline comes in. Discipline is about being diversified and consistent. Just allocate your money to a good portfolio and then let the power of compounding work in your favour.

It is more important to diversify in such times

In a market panic, it is essential to diversify. This is the time you must use to restructure your portfolio. For example, if your portfolio is overloaded with a few stocks or sector funds or thematic funds, this is the time to take a bet on diversified funds like large cap funds or multi-cap funds. A much better way to diversify is to opt for index ETFs that are intrinsically diversified without the worry of any unsystematic risk. Again, diversification must not be only at a stock level but also at an asset class level. Explore if the time is ripe to increase allocation to debt and gold. Look at other asset classes like REITs, INVITs, etc. At the end of the day, the more choice you have, the better it is for you.

Panic corrections may give you the jitters but it also provides opportunities. The onus is on you to make the best of it.

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