Coronavirus impact: 5 do’s and don’ts to protect your investment portfolio in a bear market
After decades, the Indian market is experiencing a full-borne bear market. The investors have started to get worried about how big the cut will be this time, and they are trying their best to protect their own finances in the best possible way. The reasons for stock market crashes will be different every time, but surviving in these events stay the same.
Here are some do’s and don’ts to follow in order to protect your investment portfolio:
What to do:
Create a financial cushion:
A lot of bear markets have crippling economic downturns that can wreak havoc on your finances. There are various inevitable outcomes for the sputtering economy, which are salary cuts, retrenchments, or delay in the payouts. Before you make any changes in the investment portfolio, you need to understand the bear market not only causes downturns in the market but also can hurt your finances. To safeguard your finances, make sure to build a contingency fund that will cover around six months of your expenses. In this way, you will not have to force the retirement savings in the cash crunch.
Reassess risk tolerance:
If you think that you know how to reassess risk tolerance during the sunnier days, then you have probably misjudged it. During the good times, you do not understand the risks that these things can carry and how many downturns you can face that’s why it is important to reassess the risk tolerance according to every time. In the situations where the bear market is changing, you need to go through the risk portfolio because that’s when you will get the accurate results you want.
Keep the war chest ready:
When it comes to money, the investors get cold feet during the bear market, and even when the market gets recovered, the investors still get hesitant to get back in the market. When the market is fully recovered, then the investors feel that they have missed the opportunity. You have to make an entry in the market because the longer you remain on the sidelines then the further you will get from the opportunities when the market recovers fully. Be ready and prepared to invest your money and put it to work quickly.
Stick to the fundamentals:
During bad times, the typically fundamental companies always tend to sail through the times. The companies which are run in the fundamental ways and properly will be able to get back after this time quickly. Make sure that you stick with the main things and avoid the aggressive bets during this stage.
Get the financial plan in place:
If you want to protect your investment portfolio, then you have to make sure that you keep your financial plan in order. If you haven't kept your investment and financial plan in order, then you can face problems later, so it is essential to have your financial plan in order. Make sure that you create a good financial plan for your company and take action accordingly to keep the plan in order and finances in order.
What to not do:
Don’t try to catch the market bottom:
Every investor pays attention and tries to identify the times when the stock market will hit rock bottom. It makes the investors really happy to recover completely after the ride is over. Make sure that you are not committing your cash in one shot because that will not help you much. So don’t be in a hurry to catch the market’s bottom, but just concentrate on your finances.
Don’t review funds now:
You need to stop looking at your investment portfolio value every day. If you look at it every day, then you will have millions of questions in your mind about the finances. After a while, you will start finding out faults in every investment that you made, which is not healthy for any business. During these times, do not look at the investment portfolio for a few months. If you are taking any review at this stage, make sure you consider every asset allocation while doing that.
Don’t change the investment strategy:
Every company has an investment strategy, but it is important to understand that making any changes during the bear market stage is not good for the company. During this stage, let the investment strategy be as it is and do not make any changes in it. Investors follow the same investment strategy for a long time, so making any changes will be like abandoning the years of investment principles that you are following.
Don’t get overly defensive:
Whenever the investors see any changes happening in the market, then they tend to make changes in their plans and get extra cautious with their finances, which is not healthy when there are changes happening in the bear market. During these times, it is imperative to understand that making any rash decision will not take you anywhere. If the market is down by 25%, then it is not important that it will create a huge change in the next few months, and if you go all cash during this time, then what will you do once everything gets normal in the market again. Do not withdraw anything from equity, thinking that you will put it back when the market recovers because that will be very difficult. Make sure you do not make any quick decisions in order to protect your investment portfolio.
Don’t do nothing at all:
There is one piece of advice that everyone gives during such times, which is to play dead or do nothing at all during these times. Let the investments run it’s time and do not make any changes in your investment portfolio. This advice may not go for all of the investors, but it goes for most of them, and it highly depends on the situations that the market and company are in during that time.