How to deal with stock market volatility?

Nutan Gupta

01 Jun 2017

New Page 1

A stock market drop can be an unnerving experience at any stage of life. It could have a financial as well as an emotional impact on the investors. Many investors tend to get baffled and take haphazard decisions to ensure the safety of their investments. But, if anything needs to be avoided in such a situation, it would be taking haphazard decisions. What is the best way to deal with it then? Well, let’s first understand what exactly volatility is and then move to steps how you can deal with it efficiently.

What do you mean by volatility?

It means a sudden rise or fall in the market or any such security in a short tenure. It can be measured by standard deviation of return which means the amount of variation or deviation than expected. This causes heavy trading and wide price fluctuations. Everyone either tends to buy or sell in a volatile market.

How can you deal with it?

Stay invested: Don’t let short-term losses take over the better you. Avoid taking decisions in the spur of the moment and stay invested. Focus more on your long-term goals and don’t let the daily imbalance have an impact on your returns. Planning for future might help you gain as well.

Don’t abort your plans: A sudden movement in the market might have different implications for those who just started investing and other professionals. Don’t change your investment strategies by hitting the panic button every single time. Reassess your goals, time to achieve and your plan to ensure that you are still on the right track. The idea is to change course when needed rather than to abort the mission.

Diversify assets: The best way to deal with stock market volatility is to diversify your assets. Help your portfolio to modify according to the need of the hour. A good mix of equity and debt funds can give you a more balanced approach than just going all equity in such market. Ensure you have your safety net in place before you plunge into the volatile market.

Do an active risk management: Desperate times call for desperate measures, they say. Don’t indulge into passive investing at such volatile times. Take the control in your hand to drive your investments towards growth. Adjust your investment portfolio on the basis of your risk tolerance. This would make you money as well as secure your future if the market decides to crash abruptly.

Consult your financial advisor: Talk to the professionals when you feel things are getting a little out of your own hands. Financial advisors can guide you by assessing your portfolio with other factors and suggest steps you need to take. They can also help you with a detailed financial plan if you wish to take some help in that as well.

Some other factors that would help you survive the volatile markets include:

  • Ensuring that all your essentials are insured or covered

  • Having cash handy as a shock absorber if markets crash

  • Having a strategic plan with reference to your investment income. This could mean creating a withdrawal strategy too

  • Adjusting your withdrawal rate that helps you navigate through the downslide in the market

  • Having backup temporary income sources as alternatives handy

To sum it up

Stock market volatility is a part of the market and there is nothing that you can do to avoid it from occurring. But with these tips, you could certainly try to protect yourself and your investment from losses as far as possible.

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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How to deal with stock market volatility?

Nutan Gupta

01 Jun 2017

New Page 1

A stock market drop can be an unnerving experience at any stage of life. It could have a financial as well as an emotional impact on the investors. Many investors tend to get baffled and take haphazard decisions to ensure the safety of their investments. But, if anything needs to be avoided in such a situation, it would be taking haphazard decisions. What is the best way to deal with it then? Well, let’s first understand what exactly volatility is and then move to steps how you can deal with it efficiently.

What do you mean by volatility?

It means a sudden rise or fall in the market or any such security in a short tenure. It can be measured by standard deviation of return which means the amount of variation or deviation than expected. This causes heavy trading and wide price fluctuations. Everyone either tends to buy or sell in a volatile market.

How can you deal with it?

Stay invested: Don’t let short-term losses take over the better you. Avoid taking decisions in the spur of the moment and stay invested. Focus more on your long-term goals and don’t let the daily imbalance have an impact on your returns. Planning for future might help you gain as well.

Don’t abort your plans: A sudden movement in the market might have different implications for those who just started investing and other professionals. Don’t change your investment strategies by hitting the panic button every single time. Reassess your goals, time to achieve and your plan to ensure that you are still on the right track. The idea is to change course when needed rather than to abort the mission.

Diversify assets: The best way to deal with stock market volatility is to diversify your assets. Help your portfolio to modify according to the need of the hour. A good mix of equity and debt funds can give you a more balanced approach than just going all equity in such market. Ensure you have your safety net in place before you plunge into the volatile market.

Do an active risk management: Desperate times call for desperate measures, they say. Don’t indulge into passive investing at such volatile times. Take the control in your hand to drive your investments towards growth. Adjust your investment portfolio on the basis of your risk tolerance. This would make you money as well as secure your future if the market decides to crash abruptly.

Consult your financial advisor: Talk to the professionals when you feel things are getting a little out of your own hands. Financial advisors can guide you by assessing your portfolio with other factors and suggest steps you need to take. They can also help you with a detailed financial plan if you wish to take some help in that as well.

Some other factors that would help you survive the volatile markets include:

  • Ensuring that all your essentials are insured or covered

  • Having cash handy as a shock absorber if markets crash

  • Having a strategic plan with reference to your investment income. This could mean creating a withdrawal strategy too

  • Adjusting your withdrawal rate that helps you navigate through the downslide in the market

  • Having backup temporary income sources as alternatives handy

To sum it up

Stock market volatility is a part of the market and there is nothing that you can do to avoid it from occurring. But with these tips, you could certainly try to protect yourself and your investment from losses as far as possible.

Have Referral Code?