Equity investing might sound intriguing to new investors. Often, what interests them is not the market but the short-term volatility associated with it.
Since the Covid pandemic entered our lives last year, the markets have become more volatile. We witnessed the SENSEX fall to a three-year low level in March 2020, and we saw it breaching new highs within 12 months. This movement of the market in the two different extremes with a short period can be termed as high volatility. Such moves can catch investors off-guard and can make them fall prey to biases.
Here are four vital tips you need to know about investing during market volatility:
- Stay Put with your Goals
Staying invested in your long-term goals is most important when it comes to investing during volatility. You might be thinking about pausing your SIPs (Systematic Investment Plan) when the market moves in either extreme direction. However, it’s better to continue your investment in SIPs and stay put with your long-term goals.
The markets have historically remained volatile in the short-run but moved forward in the long run.
Moreover, if you regularly invest through mutual fund SIPs, you can benefit through rupee-cost averaging and compounding. This can somewhat negate the impact the short-term volatility might have had on your portfolio.
- Avoid Investment Biases
As discussed earlier, short-term volatility can look intriguing. But during such scenarios, you need to avoid investment biases, such as herd mentality (for instance, falling prey to popular beliefs for making investment decisions), confirmation bias (this includes interpreting equity price moves as confirmation to one’s beliefs), loss aversion (such as making investment decisions solely to avoid losses than making gains) and more.
Falling prey to any of these investment biases can push you towards investment decisions that can be dangerous to your portfolio. Therefore, you must examine and re-examine your investment decisions during volatility.
- Seek Financial Advice
One of the effective ways to avoid investment biases is seeking professional financial advice. A financial advisor can guide you towards making effective financial decisions in volatile times. However, it is crucial to seek advice from a professional fee-only financial/investment advisor and not from family, friends or peers.
- Diversify the Right Way
Diversifying your portfolio by adding debt-based investments can add stability. Diversification follows the age old wisdom of not putting all your eggs in one basket. Volatile markets can tempt you to divert from your long-term financial goals. If you stay determined towards your goals, avoid investment biases, seek financial advice and diversify the right way, you can sail through choppy markets with ease.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
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