It’s not a problem when the markets are bullish and your profits are soaring up. But due to many economic, political, or geographic reasons, bears can take the markets into their grip. Thus, understanding how to handle the bear markets and turn the short-term vagaries of the stock markets into opportunities remains crucial.
Avoid Investing in Equities to achieve Short-term goals; Invest only surplus cash:
When we are exploring the reasons for the disposal of shares by a retail investor during bear markets, one major reason we could arrive at is that an investor has invested most of their income for short periods such as below 1 to 3 years horizon in equities. Thus, when the bears start to take charge, the investor starts to panic and is dominated by emotions and fear. Finally resulting in the disposal of shares.
Thus, when you avoid investing excess cash in equities to achieve your short-term goals and invest only the surplus cash you have, even if a bear market occurs, the impact of the volatility on the investor’s emotions is reduced a lot.
Diversify Your Investments Across Asset Classes & Diversify your equity portfolio Across Industries:
Ultimately, we all invest to achieve a goal, be it purchasing a dream villa or creating a corpus for our retirement. Thus, the main motive of investments is to achieve a goal. Thus, diversify your overall investment portfolio across the equities, bonds, gold, REITS, etc. based on the realistic goals you have for yourself, for achieving short-term goals choose investment avenues other than equities and for achieving long-term goals only go for equities.
Diversify your equity portfolio across the industries that have the ability to grow and protect your investment.
Always remember the time in the market gives more room for compounding than timing the markets. For more information on goal setting check our blog at https://adityatrading.in/posts/identifying-and-defining-financial-goals-guiding-map-your-investment-journey/
Have a plan to buy the dips; Explore the Advantage of Being a Retail Investor.
Most of us are already aware that buying the dips in stock markets helps in averaging the cost as well as providing a boost to the returns.
But when you should consider the fall as the dip?
Few investors hold a certain amount of cash in their portfolio only for the purpose of buying the fall of the portfolio. For example, few investors add 5% of their total investments when their portfolio value falls by 5% and if the portfolio value fall by 10%, adding 10% of the investments to the portfolio etc.
Thus, holding cash and having a plan for buying the dips is important during the bearish markets.
Holding cash to wait for the good bargains is the advantage a retail investor has when compared to a fund manager, as the fund managers are under constant pressure to create alpha year-on-year.
Maintain Correct Asset Allocation; Nearer the goal tenure - More the Debt Exposure:
Always remember, when you are trying to achieve a goal by investing in equity markets. We no need to stay invested in equities till the end of the tenure. This can result in reduced or excess corpus due to volatility in the market at that point of time.
Thus, to avoid surrendering to greed and fear in the last few years of achieving a goal, have more exposure to safer debt Instruments.
Hire a Guide or Advisor when you are confused:
Being collegial is an important habit mentioned by warren Buffet and Charlie Munger. Thus, when we have someone who has expertise in managing portfolios or an investment planner backing us, we will be more confident and our journey towards the direction of our goal is much easier.
Hope you enjoyed the article on the 5 – Step Plan to handle the bear markets.
At ATS, we believe a client should be well informed and educated 360 degrees on the aspects of investments.
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This report is only for the information of our customers. Recommendations, opinions, or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.