Most of us as investors know that equity as an asset class is market dependent and thus can be quite volatile, insanely so sometimes, in the short run. Unfortunately, knowing and experiencing are two very different beasts. Only those who have been investing for a decade or more are truly aware of exactly how different.
If you started investing in equity-based mutual funds over the past 4-5 years, the current state of the markets, thanks to the already afflicted Indian economy and the global COVID -19 pandemic, must be nothing less than shocking to witness.
Many investors have seen their portfolio values diminish alarmingly. While it might seem like a calamity for investors in equity mutual funds, it isn’t really the first time.
What you must be really wondering about is what exactly should you do? Here is a quick checklist that you can implement right away.
1. Make sure you and your family remain safe and secure during this period of social distancing
Yes, the health and safety of yourself and your family are priority number one. Before you worry about your portfolio make sure this aspect is something that you are ensuring is done well.
2. Ensure your emergency fund is topped up and if not, the next savings need to go here.
In times of uncertainty, an emergency fund is your first fortification. If you have been a follower of this blog, you very well know how much we harp on this point. If you haven’t properly allocated some liquid investment as an emergency fund which is the equivalent of at least four months’ paycheque then combine your existing short-term debt funds, FDs and liquid funds. This is your interim emergency fund. Note the value down and ascertain how long can this last you.
Your long-term equity-based investments would have taken a hit but if history is any guide, the recovery (even if delayed) will help you get back on track. Keep your SIPs going as this will help you even more than simply staying put and not withdrawing unnecessarily.
3. Re-visit your asset allocation
Think of the current crisis and market situation as a hard lesson in the value of investing according to your goals and ensuring an asset allocation based on that and your financial situation. The money you invest for the long term should ideally not be needed in, at least, 5 years. It is for situations like these this adage is repeated again and again by experienced investors.
Your short-term investments aka your fixed-income based instruments should generally be sufficient to fulfil all your planned short term goals. The time frame for these should be up to 3-5 years.
Your long-term equity-based investments would have taken a hit but if history is any guide, the recovery (even if delayed) will help you get back on track. There is also a chance that you might have to increase your savings if growth assumptions change going forward. Keeping your SIPs going for now makes more sense as this will help you even more than simply staying put and not withdrawing unnecessarily.
4. Consider increasing your savings rate generally
Difficult times like these are plagued mostly by uncertainty. Many are wondering whether social distancing initiatives are going to cost the economy. There are also rumours and fears of job losses. While none of this is certain, prudence demands preparation more than anything else.
Increasing your savings rate and cutting down on unnecessary big expenses that are not absolutely essential to your, or your family’s, well-being is one step you might want to consider especially if your industry is facing challenges. It would also be prudent to avoid taking on big debt at this point until and unless you are fairly certain of your income for the immediate future.
Stay safe, stay strong
Uncertain times like these make most of us doubt our decisions when it comes to investing. However, as long as you made your decisions keeping in mind your objectives and a realistic assessment of your income and savings, you should be in a much better position than what you might be feeling you are in.
Even if you made mistakes, there is no time like the present to learn and do the right thing which is simply saving and invest according to what you want to achieve, realistically, depending on the time available and growth assumptions that affect what you invest in.