It has been a wild ride in the Indian stock market in the past few weeks where investors witnessed the remarkable swings in the domestic indices in times of Budget and Assembly Election for 2020. On top of that, the concern over coronavirus has dented the investor’s sentiment very much. In just a few days, many investors have seen their wealth eroded while some investors benefit from such a volatile stock market and made millions. Well, what can say – this is the harsh reality of today’s stock market!
Whether you like it or not, you’re bound to invest in such volatile stock market. So, here we’ve mentioned some key things to do and not to do during the volatile stock market:
5 Things to do in a Volatile Stock Market
Do’s: Hold onto Investments
The extraordinary swings on nominal points put fear in the minds of investors which results in panic selling. However, these swings are for short-duration and won’t last much longer. In such circumstances, the investors must hold onto their investments to ensure that their long-term goals do not influence by the short-term volatility in the stock market.
Do’s: Buy for Long-term
Volatility in the stock market is a good opportunity for investors who are hoping to make money in the long-term. The volatility allows such investors to make long-term investments in buying value stocks at a much-discounted price. Meanwhile, the short-term traders can capitalize on volatility on profit and benefit from profit-booking in day-trading.
Do’s: Add Dividend Stocks to your Portfolio
Though nothing is sure with the stock market the dividend stocks have the reputation of providing consistent returns even in times of immense volatility. After all, a company wouldn’t bother to pay a dividend to its shareholders if the company’s board of directors didn’t have a positive outlook for the company. The dividend stocks work as a cushion in the times of correction when the underlying stock may fall but you’re still eligible for timely dividend income. If its dividend stock vs. growth stock then dividend stock has the natural ability to attract the investors.
And it is not just high dividends that make them suitable but the years of consecutive increment in dividend payouts as the result of a steady increase in the company’s net earnings. The dividends received can be re-invested to increase the quantity of dividend-paying stock, which can fasten the pace of wealth creation.
Do’s: Cut yourself off the Margin
If you happen to be using the leverage (i.e. margin) on your existing investments, consider this volatility as a wake-up call to cut that investment out. No doubt, the margin employed in an investment can result in huge gains but it can also be a path to steeper losses in the times of corrections.
Do’s: Portfolio Rebalancing
A volatile stock market is the best time to take some time out to rejig your stock investment portfolio. During the volatility market, your initial asset allocation could be disturbed so to restore the portfolio to its initial asset allocation, it is wise to rebalance portfolio period.
5 Things not to do in a Volatile Stock Market
Don’ts: panic sell
It has often seen that many investors overwhelmed with the fear of losing give in to the speculations and start panic selling. Remember, the volatility in the stock market is temporary. It won’t last long. If you’ve invested for long-term then don’t jeopardize your investments in selling at low prices. As long as you hold on to your investments, it won’t be a real loss. However, it will become a real loss if you sell.
Don’t forget – This too shall pass!
Don’ts: Stick to ‘Buy at Lows’
It sounds debatable since we just put ‘Buying’ in our things to do in the volatile stock market but it is to remember that sometimes it’s a trap. You cannot always anticipate the bottom of the stock price like – how much it will go down in value?
Don’ts: Stop your SSIPs
Whatever you do, do not stop your systematic investment plans in stock investing. On the contrary, the bearish phase is exactly the right moment to continue your SSIPs to buy a certain stock at a low price to address your long-term financial goals.
Stopping SSIPs mean to miss out the advantage of compounding benefit of equities.
Don’ts: Diversify within the same Sector
Diversification is a good strategy to minimize the losses within the stock investments. However, the declining market led to many stocks of the same sector available at discounted prices. When that happens, investors tend to diversify their portfolio by buying the stocks in a single sector at discounted prices at once.
Or better, do not watch your investment portfolio too frequently. This is what leads to the financial anxiety which leads to fear-driven decision making and impulsiveness which will affect the long-term performance of your portfolio.
Don’ts: Fall for Leverage
Although the recent SEBI norm has banned margin investing but still many investors use borrowed capital as a loan to finance the shares to optimized returns. You should avoid it, especially when the stock market is volatile.
As mentioned above, volatility is a major concern of investors investing in the stock market, yet can benefit any investor who is willing to take it as an opportunity to turn this volatility into his/her favour. However, if moves carelessly, an investor can lose big. So, it is important to follow the right strategy to continue moving forward in times of volatility in the stock market.