Stay On Course During Market Volatility

Some of the key areas that determine how much success you can achieve as an investor are - how you plan to achieve your investment goals, improve portfolio returns, and maintain a balance between risk and reward. It is heartening to see an ever-increasing number of investors focusing on these aspects through a goal-based investment process. However, it is also true that despite starting their investment process well, a section of the investing public is often guilty of making haphazard investment decisions whenever they are faced with market volatility. Needless to say, they often pay a heavy price for this in the long run. If you are looking to achieve consistent investment success, here's what you mustn't do. [EasyDNNnews:PaidContentStart]

Panicking during market volatility - The market volatility can test your patience and perseverance. Investors, who are relatively new to investing in equities, often panic and end up making some abrupt investment decisions. This is not to say that you should ignore market volatility. The key is how you react to the market volatility, which incidentally is a natural phenomenon. Remember, any panic decision in such a situation can impact your asset allocation and the ability of your portfolio to deliver the desired results over the defined time horizon. 

Experienced investors know that it is quite normal for the stock market to go up and down during certain time periods. Therefore, while a seasoned investor may take volatility in his stride, a new investor could get tempted to react in a manner that may be detrimental to his fortunes. Remember, if you remain invested and continue your investments uninterruptedly, you minimize your chances of missing out on the sudden rallies in the market. 

Looking at the portfolio valuations every day - Despite committing to invest for the long-term in equity funds, one can get into the habit of looking at the portfolio valuations every day. This impacts one's psyche in different ways depending upon the market conditions. When the stock market does well, you may feel like putting more and more money into equities which can create an imbalance in your portfolio and expose you to higher risks. Similarly, when you look at your portfolios on a daily basis in a falling market, it can create self-doubts in your mind and you may either feel the urge to exit from your equity investments or stop investing. Therefore, while monitoring the progress of the portfolio is important, doing it on a daily basis doesn't help and hence must be avoided. 

Timing the market - A falling market can often tempt you to make a quick buck. In reality, this can be quite a risky investment strategy as it is extremely difficult, if not impossible, to predict short-term market movements. Similarly, any attempt to book profit in a rising market, with an intent to reinvest during a fall in the market in the near future, can backfire. Remember, even full-time professionals like fund managers find it difficult to time the market successfully on a consistent basis. Of course, if you have an investible surplus that can be put aside for the longer-term, it can be invested as a combination of lump sum and systematic investing through STP. 

Shifting focus from goals - A goal-based investment process makes you better equipped to tackle the vagaries of the stock market, as compared to someone who doesn't have an investment plan in place. The best thing about following a goal-based investment process is that it helps you decide and maintain your asset allocation at all times. 

Considering that asset allocation helps you determine the level of risk in your portfolio as well as the kind of return you can expect from it, you mustn't shift your focus from your goals. Remember, continuing your investment process uninterruptedly ensures that you benefit from averaging and maintain the desired balance between risk and reward. 

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