The last two weeks have been a test for investors as stock markets fell on the news of Russia launching a military attack on Ukraine. Stock markets remained volatile. At a time like this, many investors take knee-jerk decisions, which harm their investments in the long run.
According to experts, one should not let emotions drive investing decisions. Accept the emotions but do not react. Calm your mind, try to take an objective view, consider the impact of the event (what it is and how long it will last) and then decide if you need to change anything in your investing pattern.
Here are five ways to steer clear of emotions affecting your investing decisions:
Don't Panic: The last thing you want to do in a volatile market is take a panic-stricken decision. Do not believe in hearsay and take sudden decisions. “Remember, you can make the best out of equity investments when you stay invested for the long term. The current dip is a fallout of the political situation, and will correct itself. You will stand to gain only if you remain invested,” says Adhil Shetty, CEO, Bankbazaar.com
Buy During Dips: The current volatility gives you an opportunity to buy at low prices and pad up margins once the markets bounce back. If you decide to invest to take advantage of the dip, stick to good quality stocks and the sectors you know about.
Diversify More: A diversified portfolio can absorb market shocks better. This is the time to evaluate your portfolio and ensure you have a good mix of assets such as gold and bonds in addition to equity, especially if you are investing more in equity to take advantage of the dip. “However, do not rush from equity to debt at this point to rebalance your portfolio. Do it only if your portfolio demands it, and even then, give a couple of months for the situation to stabilise before you rebalance your portfolio,” adds Shetty.
Take Advice: If you are confused and not sure of what the right steps would be, speak to a financial expert to get greater clarity about your financial decisions, planning and allocation of your funds in the right places. Proper advice will stop you from taking steps such as stopping systematic investment plans (SIPs), redeeming mutual fund investments and/or selling stocks you had selected after due research.
Do Nothing: If you do not know what to do and do not have access to professional advice, you can choose to leave things unchanged. As your previous investment decisions would have been taken based on a plan, short-term fluctuations need not alter the overall path. Remember that many crises have passed and more will come. So, volatility is to be expected. Don’t let that derail your long-term investment strategy or plan.