Will the blockbluster returns of the year 2017 be repeated or will the tepid returns in 2018 with the volatility experienced, be on display again in 2019, asks an investor. The answer is we do not know. We would recommend to leave the forecasting and prediction to the astrologers and as an investor have the framework of time-horizon, asset allocation, cashflow and liquidity in line with your risk appetite, risk capacity and risk tolerance.
As an investor, do you have control over oil prices? Or over the matters of trade wars between the nations? Or, for that matter, who will win the 2019 elections? The answer is No . But what you can have control over is your behaviour, your risk tolerance, your spending habits and investment strategy and not to forget, your asset allocation process. And this is where you as an investor should concentrate.
Election year & market volatility
This year is an election year and there could be market volatility. The recent Assembly elections in three major states did not go in favour of the ruling party. This could in some manner lead to certain populist decisions, affecting fiscal prudence. But then, let s not get into conjecture.
What has the past data of returns in the election year displayed? Starting from the general elections in 1979 till the last election of 2014, the BSE Sensex has always been in the green at the end of the respective years. And the returns are definitely higher, if we consider the period six months prior to the election and six months post the election.
As an investor, the returns are only one aspect of the wealth creation, the more important part is you and how your investment behaviour with respect to asset allocation, cash flow is put in place, to mark the volatility of the markets.
Fixed investments, gold and real estate
Fixed instrument investments in 2018, despite the uncertainty of asset-liability mismatch of non-banking financial companies, was able to deliver returns of over 7%. With the US Fed Reserve stating that it would want to increase the interest rates in 2019, could it lead to flight of capital? And this is again where the asset allocation coupled with your cash flow needs to come into prominence. Gold as an asset class is recommended as an hedge and not as a primary asset to be built upon.
Real estate as an asset class has continued to disappoint in terms of the returns and lack of liquidity. However, with the regulatory body RERA in place and the courts in India ruling in favour of buyers, there is hope for this sector. Whether we will see the kind of returns experienced in the boom periods of the last decade, is a matter of speculation.
The calendar year returns in the elections year of 2004, 2009 and 2014 were 13%, 81% and 30%, respectively. Will 2019 also have similar returns?
Investing is not about speculating. It is about having a process and a investment strategy in line with your needs and requirements and your risk appetite and tolerance. The most important but ignored aspect is discipline in the investment. Do ensure that 10-20% of your monthly earnings are allocated to investments and not just savings. If this is a big ask, any amount, even Rs 1000 is a good beginning.
As we enter 2019, let us try to become an investor for whom returns are not the only criteria for the investment. This structure along with the investment philosophy would ensure that volatility does not affect us in our decision making.
The writer is managing partner, BellWether Advisors LLP