Benefit From Market Volatility

When it comes to investing for the long term be it for wealth creation or meeting financial goals, circumventing exposure to equities is nearly impossible. This is because equity is the only asset class which over the long term can generate inflationproof returns. But the unsettling aspect about equity is the volatile nature of the asset class. No two days in equity market look similar. Any development be it micro or macro in the domestic or global markets can impact the market sentiment. So, one can never predict the direction of the equity market in the short to medium term. 

When it comes to long-term market trends, historical data shows that given the growth market that India is, the trend has been a positive one with the markets heading higher and patient investors creating manifold wealth. At a time when there is global uncertainty as to how growth and inflation in advanced economies will play out, not to forget global central policies and how these will impact the emerging economies and currencies, there are too many variables which can impact the Indian equity markets. So, if you are an investor in India in 2023, then be rest assured that this year is going to be a volatile one. 

However, instead of worrying about the impending potential market volatility, there are ways and means in which one can benefit from market volatility and that is where an investor needs to focus on. Given below are four things an investor should remember when investing this year:

1) Maintain Asset Allocation Discipline
The good old asset allocation is your best friend when investing. By deciding one’s asset allocation early, an investor will know the quantum of risk he or she is ready to take in the portfolio. On the basis of this understanding and financial goal requirements, the allocation to various asset classes can be decided. Also, asset allocation will encourage you to spread your investments across various asset classes. 

Remember that no single asset class will be a winner every year. For example, after a stellar performance in 2020 and 2021, equities in 2022 took a breather and delivered just 4.4 per cent return. At the same time, gold, which generated negative returns in 2021, delivered 14 per cent return in 2022. Given that no one can predict which asset class will do well and when, it is prudent to have exposure across asset class on the basis of one’s financial goal requirement. 

2) Choose the Debt Option
Among the investing fraternity, debt is one asset class which is not only considered boring but also ineffective, which is not true. Debt has an important role to play in a portfolio i.e. delivering stable returns and aiding in downside protection of the overall portfolio. This is the asset class which will provide a cushion effect when volatility spikes in other asset classes. At a time when interest rates are expected to head higher and stay elevated in the near term, it is important to not overlook debt just because it has delivered muted returns over the past two years. Now is the time to consider a short duration scheme and lock in some of the elevated rates through various debt offerings. 

3) Make Good of Market Volatility
Thanks to categories like the balanced advantage or dynamically managed asset allocation schemes which typically have a counter-cyclical approach to the markets, there is a disciplined method to reap gains from volatile market conditions. Through this category, one can take exposure to equity and debt. An investor can also consider investing in categories like multi-assets where gold too is available along with equity and debt. Given the uncertain outlook, precious metals like gold and silver look poised for another fruitful year.

4) No Tinkering with SIP
Many a times as a means to protect the capital from market volatility, investors either pause or stop a SIP. The idea is that when the volatility or correction phase is over, the SIP will be restarted. In reality, what makes a SIP powerful and a wealthcreator is the larger number of units accumulated during the downtimes or sideways market phases, which as the market rises, enhances in value. So, do not make the mistake of tinkering with SIP just because the market conditions look unfavourable. 

MJ Wealth is a boutique investment firm based out of Chennai catering to clients globally. The firm caters to HNI investors with focus on better risk adjusted return. The team consists of Certified Financial planners and ex Private bankers who have 15+ years’ experience of working with large MNC and Private wealth firms.
The writer is Proprietor, MJ Wealth ■ Email : mijeshjain@mjwealth.in ■ Website : www.mjwealth.in