2018 was like an amusement park ride for the investors; and not the pleasant merry-go-round ones. Rather the monstrous and topsy-turvy roller coaster. The picture looked gloomier when people compared against almost 30 percent gains in 20171.The market was rocked with numerous scams involving quite a few big names from the financial world. From the global perspective, the rising crude oil prices, weakening rupee and broadening trade account deficit further contributed to the volatility in the market. In fact, market experts are of the opinion that the instability is likely to continue till at least the first two quarters of 20192, especially given the impending elections.
However, as they say, tough times do not last, tough people do. In fact, if we analyze the market trends from the last year, we can re-learn some important fundamentals that were swept under the carpet when the going was good. Wise investors should keep these strategies at the heart of all their investment decisions in order to get adequate returns on their hard-earned money.
Be in it for the long-haul
Equity investment should never be done with a myopic view. A great case in point is those investors who got lured into the market on the basis of 2017 gains. They have either come down to the starting point or incurred losses in 2018. One of the most important principles is to invest with a long-term view. Past market trends and analysis also indicate that the market corrects itself over the long term. Indexes like Nifty and Sensex have also generated positive returns during the last ten or so years3.
As with everything else, quality of the stocks should be a crucial factor while investing. One could stick with well-reputed companies with reasonable track record, stable management and strong business principles.
Asset and Category Allocation
One should not blindly follow the crowd when it comes to investing. It is important to adhere to an asset and category allocated strategy based on one’s risk appetite and financial goals. This also helps to ensure that all the eggs are not kept in one basket and also one does not go overboard on certain funds. Also, if one asset or category class takes longer to deliver, the returns from the other one will keep your portfolio balanced.
Sometimes it is better to walk the middle ground rather than choose the extremities. This principle came out very strongly against the market volatility in 2018. Equity and debt are two extreme ends of the market. It is relatively safer and could be a better choice to invest in hybrid funds which give you best of both the worlds. They do the complex task of asset allocation on the investor’s behalf. Additionally, one also benefits from their professional fund management.
Another point to note is the tax treatment (for capital gains as well as dividend) that is offered to these hybrid (equity balanced) funds.
Believe in your SIPs
SIPs are a long-term commitment. One should stick to their SIPs as they invest across multiple market cycles. Above all, they can help you to save a certain portion of your money on a periodic basis.
To sum it up, 2018 may have been a bad year in terms of the volatility but it did bring the market and investors back to earth. Above all, it corrected the sudden (and sometimes questionable) peaks that the market had reached. It helped all of us understand the risks involved in investing and the importance of well-researched and sound investing. So, do not be disheartened or afraid of the market wonderland. Never forget that in order to enjoy the rainbow; you need to put up with a little rain.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully