Invest now, but get your check-list right

Markets are volatile and my portfolio, after crashing through the floor, is all over the place and in the short term, I don’t know what to do and my advisor/asset managers are telling me to hold the course -- it is a common phrase in the markets right now. Unfortunately, most retail investors invest when the equity markets are peaking and then panic when the cycle turns, thereby perpetually losing money across cycles when just equity markets themselves return 4% more than the G-secs over the longer term.

This is not an unusual reaction for anyone looking at losing a part of their hard-earned money to market vagaries and indeed not a unique one.

Neither are the solutions complicated.

Getting away from clichés like panic and greed, most people must remember a few basics.

Firstly, remember it’s a cycle and there will be ups and downs like there were ones preceding the current market run-up. It stands to reason that a market downturn will also be followed by recovery as uncertainty reduces and investor expectations align well with a fair valuation.

Investment plans: It is therefore important to decide on asset allocation within a larger financial/investment plan and stick to it. Allocations, however, need to be wise and aligned to financial objectives. Such an investment plan needs to be tailored for the long haul, with a variety of investments, some of which, will perform in a diverse range of market scenarios.

An example of this is blending gold and bonds into an equity portfolio. Weak correlation between these asset classes would help weather inclement market conditions.

Money management: On a day to day level, investors do need to hold the course thus charted and not try to time markets. Those activities are generally futile and at worst can burn a hole in the portfolio, should one get it wrong.

How can one get it wrong?

It’s in predictions and probabilities: getting it wrong just once may wipe out all gains and then some. A case in point is retail investors attempting to time investments into troubled companies and bottom fishing for bargains.

Hire a professional: While the above may be straight forward, some of us who have full day jobs may find themselves unable to devote time to the planning, let alone management of their portfolio. In that case, get help from an investment advisor.

An investment advisor is a SEBI registered qualified professional who is authorised to offer financial advice in exchange for a fee. These are different from a distributor (of financial products) in the sense they are paid directly for services rendered much like any other professional.

Their job is to look at an investors investment problem and provide them with an appropriate solution which could be in the form of one-time advice or ongoing portfolio advisories.

Additionally, they may even suggest appropriate “managed” solutions where other professionals will design or select components for the portfolios in a PMS structure or via an electronic platform.

Some riders: Some points to keep in mind while going for any or all the above ideas: invest regularly and invest consistently to average out entry and exit prices.

Near tops and near bottoms are good enough. Automatic investing based on established principles is far better than sentiment or emotion-driven investing in the long term.

It prevents us from falling in love with our decisions.

Given the tax regime, do take advantage of tax loss harvesting to offset other gains in a financial year: after all a penny saved is a penny earned.

This should be a part of the investment plan.

The bottom line: a well-designed investment plan is far more useful in achieving our financial objectives and fretting about market volatility is equally futile.