Ups and downs in the financial markets are normal and inevitable. However, certain events trigger uncertainty and make investors wonder how long it will last. Demonetisation, the COVID-19 pandemic, and the Russia-Ukraine war are a few examples of such events. You are unable to decide whether you should hold on to existing investments, sell/discontinue them or invest in something new.
Here are some useful tips to help you to make an informed decision about investing during uncertain times:
- Keep a Long-Term Horizon
A long-term horizon is considered conducive to minimising market risks and maximising the growth potential of your investments. Long-term investment avenues such as equity give your money more time to take advantage of compounding, reinvest your profits and save taxes on capital gains. So, it makes good sense to hold your equity investment instead of selling the stocks in a panic mode. Avoid stopping and starting investment tactics. There is ample historical data that proves the market yields better returns in the long run.
Moreover, the risk of uncertainty also gives you an opportunity to invest or buy at lower prices. This enables you to create the margin of safety to keep room for investment errors, downswings or market correction.
- Diversify Your Portfolio
Portfolio diversification is the golden rule of investing. Diversification lowers risk exposure and is much more likely to give consistent returns even when the uncertainty continues to mount.
You should look at diversifying your portfolio across different asset classes, sectors, and regions with different risk and return characteristics. It is advisable to spread your equity stock portfolio based on:
- Market capitalisation (large cap, mid cap, small cap)
- Risk (blue chip, beta, cyclical)
- Ownership (preferred, hybrid)
- Dividend payment (growth, income)
- Geography (domestic, foreign)
- Price trends (cyclical, defensive)
- Follow Your Personal Investment Roadmap
The herd mentality approach is a big temptation when the market is going through turbulent times. You want to do what others are doing to sail in the same boat. Well, this is a risky proposition for you as the risk of losing money is high. This is because what works for one investor may not be right for you.
This is where a personal investment roadmap can rescue you during uncertainty-driven volatility. You should instead invest as per your investment objectives and risk appetite. Rely on your market research and assessment rather than the beliefs or information of other investors. Alternatively, you can consult a professional investment advisory services firm to help you gain clarity and capitalise on uncertain times for advice relating to equity investing.
Purnartha is one such investment advisory and portfolio management services company with more than a decade of experience in equity markets. A SEBI-registered company, Purnartha believes in a research-backed investment approach. Hence, it deploys a robust research methodology and investment strategy to meet your wealth creation goals. You can rest assured that your investment portfolio is in good and safe hands.
Get in touch to make the most of your investment planning for uncertain times.
