Manage Your Equity Portfolio with Patience and Perseverance - Hemant Rustagi Chief Executive Officer, Wiseinvest Pvt Ltd.

One of the key challenges for equity fund investors, during their ongoing investment process, is how to tackle different market situations. Considering that volatility in the stock market is a natural phenomenon, these situations not only test investors' patience and perseverance every now and then but also determine the level of success they can hope to achieve over time. [EasyDNNnews:PaidContentStart]

While the general belief is that investors err during a falling market, the fact remains that even a rising market poses a challenge as they often get tempted to make a quick buck. It's a proven fact that by keeping focus on investment goals and time horizon, one can avoid making any haphazard decision during the most challenging situations. However, it's common to see investors reacting differently when faced with different market situations. 

For example, there are investors who not only develop a bias towards equity in a rising market but also allow the portfolio to ride on. Similarly, in a falling market, as the fear takes over, investors often feel compelled to exit in a hurry as well as stop making further investments. No wonder, they either get exposed to much higher risk or earn much lower returns than what they should on their long-term investments. 

If you are an equity fund investor, you must remember that equity investments require long-term commitment. Hence, any abrupt changes in the portfolio can derail your investment process. Although some level of exuberance and fear is normal as the stock market usually has a mystique surrounding it, the right way to benefit from its true potential is to be sure about the level of allocation and by following a disciplined approach to investing. 

In other words, if you follow an asset allocation strategy and maintain the pre-decided allocations through your time horizon, it not only allows you to create a balance between risk and reward but also helps you tackle the vagaries of the markets. For example, a young investor may decide to allocate a significant part of investments to equities for creating the retirement corpus. In this case, if the time horizon is more than 10-15 years and the money is invested in equity funds through SIP, there is no reason to worry about the market volatility. Therefore, asset allocation can be maintained until 12-18 months before retirement. This will allow him to preserve the gains made as well as realign the portfolio from being growth-oriented to one that can generate income and growth. 

However, if someone decides to keep 50:50 allocations to debt and equity for a medium-term goal, the strategy has to be a little different. In case the portfolio drifts by, say, 10 per cent or more, it would be prudent to rebalance it. However, the rebalancing should be done only for the accumulated corpus and the fresh investments should continue uninterruptedly. Remember, portfolio rebalancing, either up or down, is a necessary step for long-term success. 

It's also important to understand that rebalancing is more about risk than return. An ideal portfolio is usually designed to meet a particular risk tolerance. Therefore, if you don't rebalance the portfolio, it can suffer 'risk drift', as one asset class grows faster than the others. 

As is evident, if you remain disciplined, investment decisions would be taken as a part of a well-thought-out strategy rather than to either take advantage of the upside in the market or to protect investments from the market downturns. 

Last but not the least, you must remember that equity as an asset class allows you to own some of the best businesses, directly or indirectly. Hence, your thought process should be that of an entrepreneur rather than a trader. In other words, patience and perseverance can ensure success for you on a consistent basis. 

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