It may be difficult to believe that this may be a good time for investors to invest with the red splashed across stock counters one day and wildly swinging markets the next, a bank being put under moratorium, an instrument that was seen as a safe option suddenly becoming riskier than equity and losing all its value, the global economy in a tailspin and a pandemic that shows no signs of abating. But if you look beyond these very real and very significant issues there is an investment opportunity for investors across asset classes. However, this is an opportunity that should be exercised with caution. We look at what the current situation means for your equity, debt, gold and foreign currency assets and how to handle your investments at this stage.
Coronavirus outbreak has left common investors worried over how they can protect their wealth and invest. What could be the smart strategy to pursue in current uncertain times when a deadly virus has wreaked havoc on the stock markets across the world and killed thousands of people, including three in India till today.
Invest when others are fearful
The current situation with the world getting hit by Novel Coronavirus has unfortunately worsened condition of global economy. Our country was already at its all-time low economic growth. But tomorrow will always be better than today, in times to come everything is bound to get settled and economy will continue to grow. The smart strategy currently will be to do long term investments by taking a little bit of risk. Because in the long run it will pay off. Be greedy when others are fearful.
The markets may not seem favourable now. But the investors should not make decisions in haste. To beat market volatility, the best thing an investor can do is to stay invested over the long term. Equity-linked investments are known to offer excellent returns when one stays invested for more than five years. One may enjoy high returns on short-term equity investments, but it may not work every time, and the current market scenario is the best example of this.
Gold shines in periods of uncertainty
With gold touching all-time high prices against most currencies, with the exception of the dollar, the case for gold continuing its run seems certain given the uncertainties surrounding the economic impact of the Covid-19 crisis. With equity markets in a tailspin and as investors take a step back from risk, gold becomes a safe haven which attracts money and sees demand drive up the price. Central banks are expected to continue their efforts to keep the monetary situation accommodative and gold is expected to benefit from the low or negative yield scenario, since it is not an interest-bearing asset and the opportunity cost of holding it, relative to interest-bearing debt instruments, comes down.
Smart Strategies to Invest
Invest with a Long-Term Horizon
Markets have recovered from worse situations in the past and they will recover from this crash too. However, the severity of the situation determines the time it can take for recovery. Hence, long-term investment strategy works.
Invest slowly but steadily
Systematic Investment Plans (SIPs) are good tools to use during such times. Choose securities with strong fundamentals and start a SIP. Over time, you will benefit from Rupee Cost Averaging and as the market recovers, and stand to gain handsome returns.
Avoid Emotion-Driven Decisions
It is natural for people to panic given the possible impact of the virus on economies around the globe. However, panicking and selling can only lead to losses since markets are down. However, holding on to good investments can offer an opportunity to earn good returns.
Don’t try to time the Market
Some investors might be considering investing a lump sum into the markets since they are down. While theoretically, this might be a good idea, the impact of a situation like an epidemic cannot be predicted. If it aggravates, then the recovery might take longer meaning your funds will be stuck for an extended period of time. Investing via the SIP mode can free you from timing the markets. Another way is to go the Systematic transfer plan route where you can invest a lump sum amount in liquid funds and then periodically start diverting these funds in an equity fund systematically.