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Jun 20, 2012, 11.56 AM IST
When it comes to investing in stock market or mutual fund, many of us hesitate to invest in stock markets. First thing that comes into our mind is that what will happen to our invested capital if market again crashes like it had crashed in 2008.
When it comes to investing in stock market or mutual fund, many of us hesitate to invest in stock markets. First thing that comes into our mind is that what will happen to our invested capital if market again crashes like it had crashed in 2008. Would we lose all invested capital or would our portfolio perform even in falling markets? These are normal questions which haunt us now before investing. People prefer to invest their money in government securities, FDs or any instrument returning a fixed yield rather than investing in stock markets or mutual funds.
Before 2008 market crash many of the investors were blindly investing in equity markets. More than 90% of their portfolio was into equity stocks or equity MFs. A lot of them have made good money in the stock market. However, after market crash millions of investors had to suffer great losses, lose back their profits, or have un-expected returns in their portfolios all because they had no plan, no coherent strategy for managing their assets, for obtaining a reasonable and consistent return, and managing or minimizing their risk; their greed made them blindly chase the hottest cake in town. However many of them have changed their view while investing. So the most buzzing question everyone is asking as to whether mutual funds are safe for investment? Let’s have a look at some investment strategies which may help your portfolio sustain the next big market crash like the one we had in 2008.
Do not put your all eggs in one basket
In today’s volatile markets, it makes sense to spread your investment across asset classes. Diversifying your investments can prove to be a great boon for you when one of the asset class enters its downward journey. If you diversify your portfolio, your overall portfolio performance should deviate less because losses from some investments are offset by gains in others. Therefore, you would face lesser risk than a person who puts all their money in any one type of asset class such as stocks, bonds, government securities and FDs. Diversification also makes sense because no single asset class performs best in all economic environments.
Invest in GOLD
Gold is an alternate instrument to invest. For several reasons gold has proved as good investment tool. The most important amongst them being that the value of gold as a commodity is an excellent store of value. If your grandfather had a kilo of gold dug down under the ground, and you re-discover it after decades, the same gold would help buy the same amount of goods for you that your grandfather would have been able to buy at his time. Gold value depends a lot on global demand and supply. The gap between which has been narrowing down uninterruptedly for very long periods of time. The value increase has always covered the price of inflation, making gold one of the few investments able to protect against currency depreciation. Equally important is the fact that the gold is very liquid, meaning that there will also be buyers for gold, no matter the economic difficulties the rest of the global economy goes through. You will be able to exchange gold for any currency in any part of this world.
Follow Asset Allocation
"Asset allocation" is dividing your portfolio among stocks, bonds, real estate, cash, and other investments according to your risk profile. Historically it's rare that all asset classes lose money at the same time. Spreading your money across investments will help lower the volatility of your portfolio. So it would be recommended to spread your risk our different asset class and most importantly STICK to it. Don’t you regret withdrawing from your bond funds and investing into equities in 2007 when in the very immediate year stocks went crashing and bonds rewarded its loyal followers?
Jun 20 2013, 11:06
- in FII View
Jun 20 2013, 11:06
- in FII View