Every once in a while, we investors have to go through testing times. The frustrating part is that these periods are not of our making creation or the result of our decisions. In fact we have no control over them at all. Just when you start feeling confident (sometimes over confident) about your investments, along comes a market crash, brutal bear market or an economic crisis or even pandemic, that could negatively impact the stock markets. And your portfolio sees red, sometimes for a short period and sometimes for a long period.

For all those who started the investment journey during covid, consider this phase as your Baptism into the world of investing. Everything that you read or heard about regarding risk tolerance; you will personally experience it and the emotions that come along with it. This is when the true investing capabilities will be put to test. You may claim to be having high risk tolerance, but a market like this will reveal your true nature. Seeing your investment decline, you may panic sell converting paper loss to actual loss. If you are investing through SIPs (Systematic Investment Plan) you may stop your investments. Both may prove counterproductive in the long run.

Historical data shows that the period doesn’t remain like this forever, it will turnaround eventually, although the timing is unknown or uncertain. All those who were able to stick to their resolve and walked through the fire emerged stronger and an evolved investor. But during the period, the emotional upheaval one feels seeing your portfolio value day after day can be tough. Remind yourself, that this is a life long journey, and you will be tested several times during this journey. Have an advisor in your corner, who can help you see through the difficult period with facts and data.

This period will teach you that risk management is as important as returns on investment.

A strong foundation makes for a strong structure.

  • Emergency fund – at least six months to one year of expenses kept in low-risk fund.
  • Diversification – Spread investments across non-correlated asset classes (such as equities, debt, and gold) to lower unsystematic risk.
  • Strategic asset allocation – Safer Funds for near term goals, Medium to high-risk funds for long term Goals & Higher risk funds for longer term goals i.e if you have the risk tolerance. When timelines and goals are clearly defined then you can weather any storm.

Some of the important qualities that will help you walk thru fire is patience and discipline. Trust your process, de-link yourself from news during the phase. Instead talk to your advisor who knows your goals and portfolio and will guide you accordingly.

What you must do during this phase – Continue on your investing journey. Automated investing or SIP helps during this phase, as it disconnects you emotionally from investing. Volatility gives you an opportunity to accumulate units at lower price, so show conviction and add more funds as and when opportunity presents itself. You could even automate this process by doing STP (systematic transfer plan) from debt funds to equity funds.

Trying to time the market during this phase is waste of your time and energies, instead discipline and emotional control will see you thru this fire unscathed and stronger.