The stock market has been on a roller-coaster. On January 24, the Sensex index was down nearly 2.66 per cent. Many investors would have rushed into the market expecting it to go down further in the coming days. However, the market proved yet again that it is unpredictable as it recovered slightly, gaining almost 0.75 per cent, a day later on January 25.
“Markets are following global trends for about a week. Fears of interest rate raise by US & other central banks & rumours of changes in capital gains taxation regime are major reasons, I believe,” says Ajay Sharma, founder, and chief investment officer of InvestmentMitra, a mutual fund advisory firm.
Market volatility can pull you in different directions as the market changes direction. The best policy is to stick to your asset allocation and invest as per your financial goals. Here are three things to steer clear off in volatile markets.
1. Do Not Go For Leverage For Short-Term Gains
Like mentioned earlier, it’s very difficult to predict the direction the market will take. So, taking debt or leverage to buy stocks that may have fallen in value is not advisable.
For example, suppose you buy some shares for Rs 10,000 by depositing only Rs 3,000 with your broker. If the shares appreciate in value to Rs 12,000, you will earn Rs 2,000. But if the share crashed badly and fell below Rs 7,000, then you would end up a loss and debt on your hands.
2. Do Not Lose Focus on Your Asset Allocation
Equity has always given the highest returns till now but by nature they are extremely volatile, so if you want to de-risk your investment portfolio, you have to think beyond equity and allocate some portion of your funds to other asset classes too.
Investing in a diversified portfolio can hedge your losses in a falling market. So do not lose focus of your long term-goals and invest according to your asset allocation needs.
“Equity investment is for the long term. Market volatility is part of equity markets, and we should ignore this as sheer noise and distraction and focus on regular investments and stay the course with patience,” says Suresh Sadagopan, a Sebi-registered investment advisor, and founder, Ladder7 Financial Advisories, a financial planning firm.
3. Do Not Get Swayed By Endorsements and Tips
When markets rally or crash in a big way, several “market gurus” may post predictions and investment tips. These may not always be genuine as some of them may even be endorsements or promotions.
When investing in the market, it makes sense to have a long-term perspective and not get swayed by short-term changes in values. Consult a financial advisor if you think you can’t tackle the volatility on your own.