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Here's how to stay on a solid financial footing in the New Year

Following the fundamental principles of investment and aligning them to your goals can help you fortify your finances, ensure you reach your goals, and be on your path to financial freedom

December 25, 2021 / 11:51 AM IST

Rahul Jain, President & Head, Personal Wealth, Edelweiss Wealth Management

With the New Year approaching, markets have corrected sharply in the face of the fast-spreading Omicron variant of coronavirus, making headlines worldwide. The heavily mutated virus has spooked domestic and foreign investors that led to tanking of both the Sensex and the Nifty.

Amid this air of uncertainty, governments across the globe are working out strategies to curb the spread of the virus by stepping up vaccination and contemplating booster doses.

But investors must not fret. Such times test your true mettle as an investor, and these tips can help you start the New Year with a bang and remain on a solid financial footing.

Hold on to Your Investments

Close

No doubt, equity markets have seen sharp corrections. It was bound to happen at some point because markets didn’t correct for a long time. It was overheated, and it was only a matter of time. However, these corrections shouldn’t bother you if you have invested in fundamentally sound stocks and funds. Remember March 2020, when markets nosedived significantly following the declaration of COVID-19 as a pandemic by the World Health Organisation (WHO).

It unnerved most, and many of them exited, converting their notional losses into actual ones. However, markets rebounded spectacularly well and rewarded those who had the patience to weather the initial storm. You must imbibe this lesson in the present economic climate as well. During corrections, even fundamentally sound stocks take a beating. Nevertheless, they are the eventual winners in the long run.

Use this Time as an Opportunity

Much is said and written when markets are down. There is a lot of noise doing the round. However, an intelligent investor turns a crisis into an opportunity. Like it happened in March 2020, many fundamentally robust stocks are available at attractive valuations. It is an excellent opportunity to add them to your portfolio to augment your riches.

Adopt caution during stock selection and add the fundamentally strong ones. Do your analysis carefully and understand the company’s balance sheet and corporate governance model, among other things, before investing. If you are looking to add any thematic stock, find out if the sector has long-term growth prospects or not, and go ahead if it ticks all the right boxes.

Continue with Your SIPs

If you have invested in stocks through SIPs in mutual funds, this is not the time to stop your SIPs unless you have achieved your goal. When markets are down, your SIPs will fetch you more units. It will average out the cost of buying with time. On the contrary, if you stop your SIPs, you will lose the opportunity to add more units at the same price.

In fact, it is an opportune time to top-up your SIPs to accumulate more units and augment your riches in the long run. SIPs weave their real magic when markets are down, and this is a time to continue your SIPs and not stop them.

Diversify Optimally

The evergreen strategy that always helps you sail through a crisis, diversifying your portfolio can help you preserve the gains made over the years, gain from opportunities in other asset classes and provide it the balance it requires.

Equally essential is to diversify within asset classes to ensure your portfolio is not bloated. For example, instead of investing all your money in five to six large-cap funds, you can divide it among large, mid, and multi-cap funds. For debt, you can invest in liquid and ultra-short-term funds along with RBI bonds.

To hedge against inflation, you can invest in gold through gold ETFs or sovereign gold bonds. Also, periodically review your portfolio to weed out laggards that haven’t performed well for long periods.

The Final Word

Following the fundamental principles of investment and aligning them to your goals can help you fortify your finances, ensure you reach your goals, and be on your path to financial freedom.

Happy New Year!

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Rahul Jain is the President & Head - Personal Wealth at Edelweiss Wealth Management.
first published: Dec 25, 2021 11:51 am
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