Weathering the storm: Smart wealth preservation strategies in volatile markets

Disciplined investing and realistic expectations are the cornerstones of long-term wealth preservation and growth.

Since 2020 markets have witnessed incredible growth—record-breaking returns and almost a 4x surge in demat accounts.

However, many new-age investors are chasing unrealistic expectations as high as 25-30 percent of annual returns. The recent dip of more than 10 percent in Nifty since making an all-time high on September 26, 2024, to the lowest point on November 21 has left them restless, questioning their strategies.

Markets have shown a slight recovery in the past few days, but many investors remain unsure about how to capitalise on it effectively.

How do you build a portfolio that grows and remains strong during market volatility? It’s not just about the assets you choose—it’s also about setting realistic expectations and managing your emotions when markets dip.

Your portfolio’s success depends on both the structure you create and your ability to stay disciplined, especially in times of uncertainty. By managing behaviour and emotions, you can avoid making rash decisions that harm long-term growth.

Let’s explore Smart Wealth Preservation Strategies that help you strike the perfect balance between growth and security.

Multi-asset allocation funds blend debt, equities, and an additional asset class like real estate or gold into a single investment. These funds adjust allocations dynamically, guided by factors such as equity valuations, gold-silver ratios, dollar strength, and broader economic trends.

The recent market fall highlights their resilience: while the Nifty fell 10 percent from its peak, multi-asset funds outperformed. The best fund gained 1 percent, and even the worst performer limited its drop to 6 percent.

With typically higher Sharpe ratios compared to indices like the Nifty 50, these funds offer a balanced approach to navigating market volatility.

Alternative Investment Funds (AIFs) are gaining traction among high networth individuals (HNIs) as a powerful tool to diversify portfolios and enhance risk-adjusted returns.

Funds like Corporate Credit and Long-Short Funds stand out by offering returns that are often uncorrelated or even negatively correlated with the markets. This not only boosts portfolio stability but also provides some investors with the benefit of regular income.

Financial goals fall into two categories: Planned and unplanned.

Planned goals are clear and predictable, such as retirement planning, buying property, funding education, hosting family events like weddings, wealth transfer, or philanthropy.

Unplanned goals, on the other hand, are unpredictable and demand financial flexibility. These might include property repairs, medical emergencies, or legal liabilities.

• Unplanned goals: Build an emergency fund invested in low-risk options like arbitrage funds.

• Planned goals: Invest based on factors like the goal’s timeline, your risk tolerance, and other considerations.

Defining your goals keeps you disciplined and focused, even during market volatility.

Behavioural biases often lead to rash financial decisions that can hurt portfolio returns. Common biases like loss aversion, herd mentality, and recency bias are especially prevalent among Indian investors.

Loss aversion bias makes investors sell at the slightest loss, fearing further declines.

Recency bias pushes many to over-allocate to equities, chasing the supernormal returns of recent years.

However, timing the market is nearly impossible. History shows that short-term market dips are common—Nifty has dropped over 10 percent within a year almost 40 times in the last 44 years, yet ended the year with positive returns 35 times.

Missing just the 10 best days in the last 20 years would have slashed your returns by nearly 50 percent.

Recognising and managing these biases can significantly improve investment decisions. Remember, successful investing isn’t about always being right—it’s about consistently making rational and informed choices.

Regular portfolio reviews are essential to handle market volatility effectively. They allow you to assess your investment performance, rebalance asset allocation, and ensure alignment with your financial goals and risk tolerance.

During volatile times, certain assets may deviate from their target allocation, increasing your portfolio’s risk exposure. Rebalancing helps restore the intended balance, reducing potential losses.

Reviews also provide an opportunity to identify underperforming assets, capitalise on market opportunities, and adjust strategies based on changing economic conditions or personal circumstances. By staying proactive, you can maintain a resilient portfolio that withstands market fluctuations while staying on track for long-term success.

Building a resilient portfolio is not about chasing the highest returns but creating a strategy that balances growth with stability. Remember, disciplined investing and realistic expectations are the cornerstones of long-term wealth preservation and growth.

Stay informed, stay balanced, and let your portfolio work for you through every market cycle.