As a first-time investor, it’s natural for Tushar to feel discouraged about the way his investments have been performing. However, Tushar does not realise that the markets will improve and he should be in a position to benefit when that happens. The only way this will be possible is by continuing the good work he has been doing so far on his savings and investments even during the bad market conditions.
Tushar should actually be saving more in these times of market uncertainty. His corpus would have shrunk because of the fall in value of his investments and he should, therefore, save more to make up for the erosion in value. If he does so, when the market cycle turns, as it will, he will have a bigger corpus that will benefit from the growth.
On the other hand, if he stops his investments now or even withdraws with the intention of investing when the markets improve, his benefit will depend on his ability to judge exactly when the market will start going up. Moreover, he will have to bring in a large sum of money to make up for the period when that he did not save. This is likely to be difficult and his benefit, when the markets rise, will be limited.
He should build on his strength at this stage. Since he has been in the habit of saving regularly, he should continue to do so and even increase it to protect his financial situation in the downturn. As far as his investments go, if the falling value in equity makes him uncomfortable, he can split his investments between equity and fixed-income instruments. The plan should be to systematically shift to equity when the markets begin to stabilise.
Tushar’s focus should be on diversifying his portfolio and investing in products with low costs and charges. Paying a high fee or cost, especially in a falling market, will be detrimental to his portfolio over the long term. Products such as ETFs, low-cost mutual funds, and deposits fit the bill. Doing all this will keep his portfolio primed for the time when the growth takes place again.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.