The stock market crash is the best excuse you can use to rebalance your portfolio. Getting rid of the non-performing investments and realigning your portfolio
When the stock market crashes, our first reaction is to step out of the falling market. However, this should not be the ideal practice that one should follow.
Instead, take this as an opportunity to give a ‘BEAR’ hug to the falling market. Not that you can't do anything about the losses that you incurred, but, you can surely stop losses henceforth.
Let me tell you why every investor should welcome the crisis in the market.
Rebalance your portfolio:
The stock market crash is the best excuse you can use to rebalance your portfolio. Getting rid of the non-performing investments and realigning your portfolio by investing that fund into financial instruments or stocks which gives you better returns.
This turns out to be an ideal opportunity to make better investment decisions and bounce back from the difficulties in the crashing market.
Remember, the crisis is not just a test but a mechanism for selecting evolutionary measures. Please ensure that rebalancing is done keeping in mind these two aspects as the benefits of rebalancing should outweigh the transaction cost and taxation.
Rebalancing of portfolio involves buying and selling securities like stocks, mutual funds, and bonds, etc. This will involve transaction cost in terms of brokerage and exit load. Moreover, there could be tax implications.
Investing at a lower price:
When faced with volatility, it is extremely essential that we adopt methods of more active money management, i.e. shorter trading methods to increase risk-adjusted returns and reduce the exposure.
This requires one to adopt a more tactical approach. A major part of any tactical approach revolves around involving stocks in your portfolio which are trading at a lower price.
But, make sure that, your research around such stocks is optimistic and they are based on your recommendations by your financial manager.
This approach will enable you to hedge your exposure at a given time without having to unwind multiple positions and incremental gains in what may be a long-term choppy market.
Watch out for trends:
Do not be affected by the sudden changes in the market, calm down and just look out for patterns in the market. To start with, learn to filter out the noise and look for patterns in the market.
This is a good way to prevent you from running too far ahead of the trend on individual stocks and sectors.
Although, in a volatile market the entire market seems to be in a recovery mode but essentially there are some stocks which are weak on the fundamentals and that they are lagging behind irrespective of the market conditions. Spotting price trends in such stocks can help you make smart investments.
Our advice, to get into an in-depth analysis of a company or sector of your choice and use trends to understand the best period to invest in them. Additionally, take insights from your manager which will help your portfolio remain green.
Success = Growth + Resilience + Renewal
The mantra to achieve success is by following Growth, Resilience, and Renewal. In this crisis situation, you should first focus on growth, as to where you can improvise your finances and what are the opportunities to grow your money.
Recover quickly from the difficult situations you faced during the crash in the market and refurbish your investment ideology to get the best out of the worst situation.
If you follow these four steps, you will not only get out of the tough phase but, achieve success while meeting your financial goals.
Don’t run away from the problems, solve them. Make a way out of the critical situation and be successful in terms of tackling the bear attack.
(The author is Head, Personal Wealth Advisory, Edelweiss)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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