Keep aside the seasoned investors, most investors do lose track of their portfolios, especially when the market is in a bull run.
The global market meltdown has not spared Indian stocks. Markets are volatile and the falling prices are taking your portfolios comprising stocks and equity funds down. “This is the time to keep calm and avoid overreacting to the volatility in the markets,” says Renu Pothen, Head of Research at Fundsupermart.com. Avoid ‘trying to catch the falling knife’ with all your money in one go. And do not go to another extreme too. Do not sell off all your portfolio.
Here are five things you must keep in mind while reviewing your portfolio to align it to your financial goals:
Check what you have in your portfolio:
This may sound absurd. But keep aside the seasoned investors, most investors do lose track of their portfolios, especially when the market is in a bull run. The unprecedented run in the small and mid-cap stocks have made many buy stocks on tips. When the going is good and the portfolio value is going up, no one really cares. But when the slide begins, stocks with good fundamentals pull the portfolio down. You can’t afford to sit on them.
Sometimes one invests in a mutual fund scheme looking at its past performance. However, of late things have been changing. The regulatory changes and marketing tactics at the fund house levels have changed the scheme’s investment objectives. Do visit your holdings once again. If there is a sea change in what you bought and what it is today, it could be something you should be selling out.
Check if you have a concentrated portfolio
Do you have one multi-bagger stock accounting for more than 80% of your portfolio? And that is something that has caused a vertical drop in your portfolio? Better review your holding. If there is a fundamental change in the company, it could be something you want to trim or sell out. You may also want to diversify your portfolio.
“If you have overinvested in small and mid-cap funds, you may also consider switching part of your investments in large cap funds to reduce volatility,” says Ajay Kinjawadekar, CEO of Moneysafe Financial Services.
Are you married to a particular theme?
There is a tendency to invest in what is hot. Small and mid-cap funds were the rock-stars in CY2017. If you have invested most of your money in these schemes, you must be seeing all red in your portfolio. Worse is the situation if you have bought some micro-cap stocks. Try to ascertain if you have overdone it. You can some of the weaker names here.
If you have stayed away from these funds, you may see it as an opportunity to buy into these funds. But do not jump the gun, say experts. “Do not buy something that is falling. It may not suit your investment needs,” points out Renu Pothen. For example, a conservative investor should ideally have 10% money in equity mutual funds. However, he should ideally be in large-cap focussed equity funds and not in small-cap funds. If a conservative investor goes by what has fallen the most, he may end up buying the small-cap fund. However, that may not be the best thing to do for him.
Have you invested short term money in a long term asset?
This is possibility with many individuals. Senior citizens have been investing their fixed deposits in balanced funds off late to earn regular income. If you need money in next couple of years, you should not be investing in risky assets such as stocks. If there is a miss-match in your portfolio of time horizon and risk involved, then take the corrective action.
Money that you do not need in next five years should be invested in risky assets such as stocks and equity funds. Rest can be invested in bonds, fixed deposits and debt funds.
Buy in tranches
For all those who sat on sidelines, the current fall is an opportunity. “We as consumer wait for announcement of sale in our favourite brands for buying. A similar sale is going on in the equity markets,” point out Balwant Jain, Mumbai based certified financial planner. “The end date is not announced yet, but eventually the sale will close and prices will bounce back. Do not buy all your need at one go. Stagger it.”It is time to start SIPping into good diversified equity scheme with long term track record. Stick to your asset allocation and build a well-diversified portfolio.