The global financial market, rebounding from a tumultuous 2023, have rallied significantly, with traditional assets like Bitcoin and gold seeing a surge, sometimes as high as 15-20 percent, within a fiscal quarter. On the home turf, too, robust economic fundamentals powered the bulls to charge the benchmark Sensex and Nifty hit record highs of 72,561.91 and 21,834.35.
However, history reminds us that economic prosperity can be laced with unpredictability. In 2023, the Nifty Smallcap 250 index gave a return of 49 percent, and Nifty Midcap 150 index fetched around 45 percent. This necessitates that investors adopt strategies to shield their portfolios from unforeseen events.
Invest in equities, but don’t go overboard
Diversification, a fundamental rule in investing, involves spreading investments across varied sectors, asset types, and geographies. This strategy dilutes the risk of dependency on a single market or entity.
For example, the correlation between gold and equities has historically been inversely proportional, with gold often gaining when the stock market dips. Similarly, bond markets show an inverse relationship with interest rates, providing a hedge during downturns in the equity space.
Events galore this year
As we look ahead to 2024, several key factors emerge that could shape investment strategies. Let's take a look...
Election Year: As many as 70 elections across 40 countries, covering nearly half of the global population, are lined up for the year. The major economies going to polls include both India and the US. Political shifts could significantly influence economic policies. Historical data suggests market volatility increases by up to 20 percent in election years. However, certainty about the continuation of the existing government infuses optimism.
Globalisation vs Protectionism: The post-pandemic era has seen a tilt towards protectionism. This shift could redefine trade dynamics, affecting global and local economies differently. Indian markets could likely see a change in foreign direct investment (FDI) inflows by 5-10 percent.
Geopolitical Risks: Persistent conflicts and geopolitical tensions, like the Russia-Ukraine war and the Middle East conflict, continue to be a concern, potentially impacting the global markets. Data shows that such disputes can lead to oil price fluctuations, affecting the markets by 2-5 percent.
India's Economic Outlook: India's robust economy, marked by solid consumption demand and a shift towards organised economic transactions, has made it an attractive investment hub. The GDP growth rate, surpassing 7 percent in recent years, underscores this trend.
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Keep emergency cash Adapting to these dynamics is crucial for individual investors, especially those with limited resources. Maintaining liquidity, for instance, keeping 10-15 percent of one's portfolio in cash or cash equivalents for emergencies is advisable.
Keep some money in a liquid fund or an overnight fund. These short-tenured debt mutual schemes are meant as alternative to your savings bank account. They are quite liquid with many of them even offering instant liquidity within a few minutes should you require your money in an emergency. We recommend that up to 3-6 months’ worth of your non-negotiable and unavoidable expenses must be kept as emergency cash aside.
Staying informed about economic trends and geopolitical developments can enhance decision-making, potentially improving portfolio performance by up to 3-5 percent annually.
Final Thought
Echoing Benjamin Graham's wisdom, success in investing hinges on a well-planned financial strategy and disciplined approach rather than merely outperforming the market. In 2024, with a focus on diversification, informed awareness of global and local trends, and disciplined investing, investors can adeptly navigate the investment landscape, moving steadily towards their financial goals.
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