As the market appears bearish, what should investors do now?

Financial markets have become extremely uncertain in the past few months following a series of setbacks such as Ukraine war, spike in oil prices, historic inflation in the US, RBI’s tighter monetary policy, among others.

Although not many believe that we are in a bear market, but investors still want reallocate their assets to minimise their losses. Many of the retail investors are asking themselves: Should they exit some of the stocks or sit on cash, or buy gold or invest in fixed income instruments? We explore more on this here:

“Equity markets tend to go through cycles. Although reasons are different from one cycle to another, but the effects are similar. Investor portfolios should be designed to weather such cycles,” says Renu Maheshwari, Co-founder, Finscholarz Wealth Managers.

Analyse first

Financial advisors say that taking investment decision without exercising due caution can lead to massive erosion in the portfolio value, so it is extremely important to analyse the market movement and the asset class to invest into.

“Each day investors are experiencing erosion in their portfolio value because of sharp corrections. This happens when investments were made without analysingrisk-taking ability and as well not following the required asset allocation based on the term to your financial goals,” says Preeti Zende, Founder and Owner of Apana Dhan Financial Services.

Invest into fixed income instruments

Experts suggest that fixed income instruments can turn out to be saviour when equity investment continues to lose value.

While praising debt instruments, Ms Zende argues that investors whose funds are now maturing can endure ongoing volatility. “Investors who have a substantial part of their wealth in the debt asset class can have more sustainability to digest such kind of volatility in the share market than a person who has taken more exposure unnecessarily than needed,” says Zende.

Ms Maheshwari from Finscholarz Wealth Managers concurs, too.

“There should be enough money in fixed income portfolios to tide over one whole economic cycle. Balance money in good passive index funds will give a good long-term growth despite occasional market crashes,” adds Maheshwari.

Should investors sit on cash?

Selling stocks in current scenario is a strict ‘no-no’, advice financial advisors. Experts advise that investors should not panic and instead face the problem head on. They caution investors against getting unnerved.

“Do not get panic and convert the notional loss into real loss by liquidating your investments. Rather analyze your risk profiling and future investments should be done according to your risk-taking ability,” says Zende. However, keeping some cash is advisable.

Chokkalingam G, Founder, Equinomics Research & Advisory, says, “Investors should keep anywhere between 5 to 20 percent of equity portfolio in cash so that they can invest whenever the opportunity is right.”

Sridevi from Chamomile Investment Consultants also believes that it is a good time to invest but in tranches. “Markets may remain volatile for at least next six months, so investors shouldn't make any lumpsum purchase now,” she says.

Debt-equity ratio

Despite massive fall and ongoing volatility, financial advisors continue to assert that since equity is meant for long-term investment, mindlessly exiting this asset class during dips and moving to debt is not a wise idea.

“This is a good time to invest for investors who want to stay invested for a long term. However, if you have already achieved your financial goals, then you can reduce your equity exposure and move to fixed income instruments,” says Sridevi from Chamomile Investment Consultants.

Time to buy gold?

As equity markets are witnessing massive volatility, investors can explore gold as a safe haven. Conventionally, it is seen as a hedge against inflation and market uncertainty, so investing a portion of portfolio in gold is not a bad option.

Starting a fixed deposit

Financial experts suggest that investors should park their money in the short-durations funds instead of locking in long duration funds in view of the rising interest rate scenario.

FD interest rates have already risen in the recent past following the repo rate hike. But since more rate hikes are in store, the FD rates will likely follow suit.

So, getting tied to a long duration FD is not recommended as of now.

Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.