As Markets Fall, Don’t Forget…

Markets have been falling around us. Reasons are many. Some known ones like Coronavirus fear, expectations that global economy will take a hit because of that, escalating oil wars, still expensive valuations, one private bank’s fiasco and what it means for others, a slowing economy, tiring growth, FII, etc. And some unknown ones. And you never know, some black swans may be hiding in plain sight.

But if you have been reading Stable for some time, then you would know that I am a firm believer (and practitioner) of buying when others don’t want too. That sounds glamorous and like super-cool market timer based on models like this. But to be honest, it is easier said than done. But still, I try to do it.

As strange as it may sound, I wish to have a long bear market. It makes sense when you are in the accumulation mode. But markets don’t do what you want them to do on-demand. So you adjust things at your end and try to tilt portfolios to benefit from them.

And it makes sense to believe things like Remember God in Good Times & Equities in Bad Times and Cash + Courage + Crisis to keep yourself motivated.

But we must not forget that at the end of the day (and unless you are ultra-rich), your investments are just a means to reach your financial goals.

You want to ‘somehow’ have just the right amount of money at the right point in time. That’s it. Nothing more nothing less. That’s Goal-based Investing.

So as markets fall (or if they continue to fall even more):

  • Just take a step back and remind yourself of why you are really investing.
  • Remember your financial goals, their timelines and your risk appetite.
  • Don’t forget that your risk tolerance is not what you think it is. And earlier you realize this, better it is.
  • And don’t just invest because markets are falling. Invest because it is right from asset allocation perspective for the goals you are actually investing for.

Sudden market movements should not act as everyday triggers for you to act and do something. You need to control that animal urge. Remember, more often than not, there is nothing much to do if you are disciplined with your asset allocation and have a clear focus on your financial goals.

If your goals are long term and still several years away, then you can go ahead and invest more as markets fall. But if your goals are just a few years away, then ideally you shouldn’t be investing in markets even if it seems tempting (to make a quick profit from a rebound).

Don’t be greedy just because others are fearful. Be greedy when others are fearful and if you don’t need the money for several more years.

In days like the current ones, what you do or what you don’t do, should fit into the asset allocation strategy you are following for your goals.

When you have come to markets with expectations of getting better-than-debt and inflation-beating returns, times like current ones can be testing. But from whatever small experience I have in markets, it pays to stay calm and remain objective.

Remember you are a human. You are not a bull* that gets triggered into running just because a red coloured cloth is waved in front of it. 😉

*even though we want to be one desperately.

If you are surrounded by friends, colleagues and family members and that is triggering you to do something and it is killing you from inside, then go ahead. Play with a small part of your portfolio if you want to. Do not make knee jerk reactions which are out of line with what your goal-based strategy is. And if you have doubts, talk to a good advisor.

Is this ongoing downfall like 2008-2009? I don’t know. We can never predict. And I don’t know if this is the bottom or it’s much lower. But in coming days, you will be bombarded with words like ‘crash’ ‘crisis’ ‘fear’ and you will see red colour splashed across business channels and newspapers. Just keep a sane head is all I can say.

Note – Whatever I am saying here is for common investors pursuing common real goals. It is not for professional ones who have different agendas and benchmarks.

10 comments

  1. Hi Dev

    Thanks for this article, I guess right topic in right time.

    What about the people like me who have already accumulated the required money for my retirement and no longer planning to invest any more in mutual funds? Is it safe option to redeem them before the value of my investment goes down?

    i agree its an opportunity for people who are still accumulation phase, but what should a person like me who have already invested the money in MF should do?

    1. Difficult to say unless I know more about the exact situation. Retirement corpus is tricky game. Many moving parts like how many years before utilization begins, return and inflation assumptions used to assess corpus sufficiency, buffer for poor sequence of returns, etc. among many other factors.

  2. Sir, if we enter in crisis like situation. Like defaults from company etc. Are money in liquid and money markets funds safe ? Generally all paper they hold is AAA or A1+

  3. Thanks Dev for this timely article, I have waited for these markets with bated breathe for over 2 years now, can’t help but get greedy over the next few months.

  4. Hi Dev,

    Is it advisable to take exposure to International MF now for diversification? FUnds like DSP BlackRock Global Allocation Fund or Kotak US Equity Fund.

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