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What Should Be Your Investment Strategy When Stock Markets Crash?

Adhil Shetty


The 806-point Sensex crash on October 4th this year is earmarked as the 5th biggest single day loss for the market over the last 5 years. Since 2015, the Indian stock market has been privy to more than 10 downturns. So, it’s good to keep in mind that volatility is an ongoing aspect of the market. With the value of the rupee lowering by the day in comparison to the dollar, rising global prices of oil, and uncertainly due to the upcoming election, there are chances of markets witnessing further slump in the coming months.

Even though the RBI has kept the policy rates at status quo, you can arm yourself with an investment strategy that will help you minimise losses and reap gains irrespective of a market crash. Here’s what your investment strategy should be.

 Don’t Change Your Investments Drastically And Trust In Your Diversified Portfolio
Market changes are like a storm. They come and go and can wreak havoc, leaving behind those who sail through and those who are taken down. However, if you have an investment folio that has your money parked in varied asset classes then you can relax even when the market is going through a heavy correction. Your portfolio should ideally have a mix of short-term and long-term investments. A diversified folio can withstand market pressures better. Keeping this in mind do not try not to readjust or sell off most of your portfolio during a crash. Instead, stay put and, if necessary, make smaller diversifications where you can increase your investment in long-term assured return instruments like retirement funds to ensure your money is safe. It would also be wise to connect with a financial expert or an advisor who can guide you better on your portfolio keeping your risk appetite and goals in focus. Mutual funds investors should not panic when markets crash, and make a hasty or uninformed move. Instead they should stay calm before taking any decision as ups and downs are a daily fact on the equity markets. Decisions like stopping your systematic investment plan (SIP) due to a fall in market can prove disastrous for your investments in the long-term.

Save More By Thinking Outside Your Portfolio
Investments are simply one way in which you can address your future monetary needs. However, a deteriorating market holds an underlying meaning. It indicates how the economy is evolving at a macro level. This may either result in future gains or compounded losses. So, in preparation of what may happen, strengthen your finances right now. To start, reduce your debts and bring them down to a manageable proportion. You can consider debt consolidation as a viable option and borrow funds from a trusted lender to pay off your high-interest credit card debt and loans all at once. This will free your income and give you a chance to save more.

Construct A Cash Corpus For The Future
Once you have freed your income from the clutches of debt, you can budget your monthly expenditures after a quick review to assign more money to savings. Building an emergency corpus is a must, especially when you are tackling market volatilities. Plan your monthly liabilities and essential expenditures in such a way that you are able to accumulate cash for further liquidity. Cut down over-spending and extra indulgences. Plan for every big purchase and save towards it to ensure you stay within the budget.

Navigate Your Investments So That You Can Earn An Income From Them
A stock market crash doesn’t mean you should put a stop to your investments. Look for investment options that can earn you dividends and income with time. Investing in a non-cumulative fixed deposit, for example, will help you access the good interest earnings on a regular basis. This is something you can even when the market is unfavourable.

Understand that after every dip there will be a high and adjust to market lows by using these strategies.

The writer is CEO, BankBazaar.

BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.