The COVID-19 pandemic has aroused a situation where there is a sense of deep uncertainty among the investors regarding the market sentiments. Indian market had not faced such a phase of crisis for a long time, though we have witnessed some of the biggest economic crises in the last three decades. Market sentiments go down for a number of reasons; however, the way to tackle these is almost similar. Here are a few do’s and don’ts to manage your finances in these tough times.
Create a financial buffer: Salary cuts, delays in payment, and lower profit margins are an inevitable part of the downtrodden market. It is always good to be prepared for rainy days. Experts suggest building a cushion for at least 6 months so that you don’t have to rely on your retirement savings for daily needs.
Assess your risk-taking ability: The tough times present the optimum opportunity for accessing the bottom hit and bouncing back ability. Mark those readings and use this version of the risk profile in the next bullish phase for a more balanced portfolio.
Go back to basics: Although the COVID19 crisis is not entirely an economic crisis, the financial outcomes are pretty similar to other ones. Go for quality names and avoid being adventurous.
Do financial planning: Bearish markets could present you the opportunity to focus on the long-term goals, instead of going for momentary hits & misses. This moment of crisis can give investors a ripe time to get health checkups done and reassess their financial goals.
Don’t wait for the lowest hit: Being certain about the situations and trade accordingly is every investor’s dream. However, waiting for the stock market to bottom out and expecting the benefits might not always turn out to be profitable.
Don’t go for frequent reviews: It is good to keep a track of your asset’s net value. But doing it more frequently at these tough times will only create panic as the market is facing a bearish trend. Don’t withdraw funds looking at ROI for now; however, you can do so if your asset basket needs rebalancing.
Don’t be too aggressive: It is often seen that some investors alter their trading strategies and go over aggressive in crisis situations. It is advisable to not exit the previous investment and stick to basics to avoid the bad trading experience.
Don’t sit idle: Tough situations bring a lot of opportunities along with it. While some of the firms are facing a survival crisis, there are some who have gone extremely bullish. Try to be active and bag all the opportunity of generating wealth.
Market movements are unpredictable. So, the risk is associated with the investment. However, in these tough times, the conventional wisdom of trading is not going to work. Again, sitting idle can lead to reduced ROI as well. The best bet is to be active and opt for the long term plans. You can use Kotak’s Wealth-Builder Calculator to plan your investment strategy.