Investing is risky in a volatile market, but the risk can be managed by making investments in instalments. Suppose an individual has invested a lump sum amount of one lakh rupees in a mutual fund scheme at a net asset value of a hundred rupees. If the market goes into a downturn after this, the entire investment gets negatively impacted.
A good way of investing in such market conditions is to fragment the investment corpus into instalments. For instance, the same one lakh rupees can be invested in a fund by investing ten thousand rupees over ten months. It offers the benefit of cost averaging while minimizing the impact of a volatile market, as the investment has been spread over ten months.
In fact, having a SIP (Systematic Investment Plan) can prove to be beneficial for all high-risk investments, such as mutual funds and direct equities. But, even in this case, the chosen investment instruments should align with your risk appetite. Meeting long-term goals becomes easier by investing in instalments. Find , which helps you create wealth for the long term irrespective of market swings. Explore now!
Rash decisions taken by investors are among the main reasons why financial goals are disturbed, and things deteriorate further during adverse circumstances. However, when an emergency fund is maintained with adequate liquidity, it can help you avoid financial distress even in the most trying times.
The definition of adequate liquidity, in this case, may vary from individual to individual. So, it is very important that you understand your financial situation and your risk profile to determine the amount. The rule of thumb is to have an emergency fund that can meet your daily expenses for at least six to nine months.
You can keep this emergency fund either in liquid funds or instruments that can be easily redeemed without loss in value. You still need to ensure you gain a return that exceeds the ongoing inflation rate.
There needs to be some room for adaptability in your financial goals, keeping in mind the fact that market forces can change from the time when the goals were set. Stay up-to-date with the latest changes in the economy, market, and asset classes with Standard Chartered Market Insights. Click here!
For instance, suppose you have a goal to buy a home after three years, and property rates at the time of setting the goal were 1000 INR per square feet. You had expected the rates to reach not more than 1500 INR when you finally bought the property. But somehow prices have gone way beyond that mark in three years. If your income does not let you increase the size of the financial goal, it’s time to make some changes to the goal itself. You could look for properties in more affordable areas of the city or buy a smaller house that still fits your budget.
Reassessment of your financial goals helps you in maintaining the much-needed balance between short and long-term goals. Updating the size of the goals from time to time is key to making them realistic.
When the investments that you’ve planned to achieve your goal don’t perform well due to market volatilities, there is always the temptation to take a loan to bridge the gap to your goal. However, it is best to stay low on debt and avoid taking on new loans to finance your goals. Remember that all loans come with a repayment due date. You will find it hard to repay your debt if your income and investments do not grow in line with expectations. It is never a good idea to get stuck in a cycle of debt that makes you feel like you never have enough money. This can leave you vulnerable in the face of the major risks of life.
Setting goals and making investments to achieve those goals is just the beginning. You need to pay close attention to the progress of your investments and evaluate your portfolio periodically. It’s best to do this at least once in six months.
A half-yearly review does not necessarily mean changing the portfolio altogether. Most of the time, it’s only checking to make sure that you’re on the right track. The reviews also let you know if there is a need to rethink your asset allocation because of the rise or fall in elements of the portfolio beyond expected levels. The criticality of your financial goal is important in this case too. For non-critical goals like a bigger car or a foreign vacation, you can afford to wait and watch if your portfolio overperforms or underperforms. For critical goals, always follow proper asset allocation and rebalancing to ensure that you stay on track to achieve them. Standard Chartered provides comprehensive wealth offerings that make investments easier and stress-free. Find out more!
Putting proper financial goals in place and having strategies to attain those is as important as it is to strengthen those goals by varied means. When you adopt pragmatic planning and take a farsighted approach, your strong financial discipline will help you tide over market downturns.