Saturday, October 18, 2008

Volatile Market: What should I do?

The stock market is always going to be volatile. There are going to be bull runs and bear runs. This is part and parcel of the stock market. Most investors in stock markets are illetrate when it comes to shares. They act on tips and do not know how to select stocks to invest in. They buy stocks that are are overpriced when the sentiment is good. During a bearish market, the seintiment is low and everybody is scared of the stock market and they sell. They end up losing in both cases. One will be successful if they acted the reverse. Don't we all preach buy cheap and sell expensive. But when it comes to the markets it is always fear and greed that drives investors actions and not simple logic. If one can learn to control their fear and greed, they will be successful. If they don't they will fall prey to the operators who cash in on sentiment.

Many investors also try to time the market. But the market does not listen to anyone, nor can anyone predict the market. Even some of the greatest investors could never time the market everytime (If you watch CNBC TV18, just try to check how many of these expert analysts get there calls right during volatile times like now). Instead of timing the market to maximize returns, one should focus on asset allocation to minimize risk. 

My advise for any investor would be to come up with a good investment plan. 

  1. Identify your financial goals.
  2. Identify the risk that is appropriate for you.
  3. Come up with an asset allocation strategy based on your risk.
  4. Build an investment plan catering to your asset allocation needs.
  5. Be disciplined and strictly follow the investment plan.
  6. Rebalance your portfolio atleast once every year to readjust the deviations in your asset allocation.
  7. Ignore the occasional turbulance in the market and stick to your investment plan. There are always going to be lot of stories around, but learn to ignore them and strictly follow your plan.

My Conclusion
It is essential for everyone to have a good investment plan. It will ensure your investments are aligned to your goals. It will also help you stay focused on your long term goals and do not overreact to market turbulence. If one is not sure how to build an investment plan tailor-made to ones needs, then please seek professional help.

6 comments:

Financial Planning said...

ULIPs and Mutual Funds both are financial products. Choice between these products depends upon various factors like age, financial goals, term of investment and many more.

yes, Identification of your Financial Goals is very important, once you identify what you want from your money , you can plan your investments accordingly.

manjoorraja said...

your blog is very useful.

Thanks.

Stock Tips said...

I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post

too.
Regards
Stock Tips

The Money Paradise said...

Investment plan is imperative before one invests into any kind of assets. And that too one should write it when investing as when assessing the investment values and time horizon, the clear picture is in front of him.
This plan should include everything from amount of money, risk, time, expected returns and expected losses before one will sell the assets in case prices going down.
This might seem to be strange but it works like panacea.

Mutual Funds said...

I agree with your post..because both the investments are booming...but i think Mutual Fundsinvestments are the best investments as it gives a better returns in less time...

tamara swift said...

Investors need to compare mutual funds before investing and they also need to learn to compare mutual funds periodically.
best Mutual funds in India