Stock markets are at an all-time high and investors who had remained invested in blue chip stocks have made huge profits and are smiling their way to their banks. There is a talk of the party continuing till the BSE benchmark index reaches the milestone of 35,000. Lured by the prospect of making a quick buck in this bull market, investors are flocking to the bourses to join the party. So far, so good, but you never know. What if the markets come tumbling down? That’s a million (or billion?) dollar question that investors need to ponder at the moment.
If you are invested in the equity market and plan to remain invested till the Sensex reaches 35,000 here’s a survival guide just in case the market comes crashing down in the near future and all hell breaks loose:
First and foremost, do not to hit the panic button and sell out; instead, the need is to stay calm and take the fall in your stride. After all, what goes up will come down someday, and then again go up, so do the markets. The markets are cyclical in nature and the rise and fall in the markets are nothing unusual.
In fact, if you are a long term investor, you need to take advantage of the falling market to bring the cost of acquisition of your stocks down. This is called the strategy of rupee cost averaging. Only a falling market offers such an opportunity, and if you adopt this strategy, you would be making higher profits when the market goes up once again. In fact, you can also take this opportunity to buy value stocks as in a bear market the valuations of good companies also get beaten down along with junk stocks. Also, you can buy non-cyclical stocks of companies whose businesses are of non-cyclical nature, such as FMCG, food, power, gas, among others, as the demand for their products keeps rising regardless of stock market cycles.
You need to play dead in a bear market, which is like playing dead when you suddenly encounter a huge bear in a jungle. In the financial jungle, playing dead means putting your money in debt instruments, be it bonds, debentures, government securities, bank deposits, etc.
If you have a diversified portfolio of investments that includes other asset classes such as debt, bullion, real estate, etc. it will help mitigate the risk of equity exposure. A proper asset allocation will help you to cushion the financial impact of a crash in the equity market. Your equity exposure should only be to the extent of your ability to sustain losses.
If you are invested in the equity market and plan to remain invested till the Sensex reaches 35,000 here’s a survival guide just in case the market comes crashing down in the near future and all hell breaks loose:
First and foremost, do not to hit the panic button and sell out; instead, the need is to stay calm and take the fall in your stride. After all, what goes up will come down someday, and then again go up, so do the markets. The markets are cyclical in nature and the rise and fall in the markets are nothing unusual.
In fact, if you are a long term investor, you need to take advantage of the falling market to bring the cost of acquisition of your stocks down. This is called the strategy of rupee cost averaging. Only a falling market offers such an opportunity, and if you adopt this strategy, you would be making higher profits when the market goes up once again. In fact, you can also take this opportunity to buy value stocks as in a bear market the valuations of good companies also get beaten down along with junk stocks. Also, you can buy non-cyclical stocks of companies whose businesses are of non-cyclical nature, such as FMCG, food, power, gas, among others, as the demand for their products keeps rising regardless of stock market cycles.
You need to play dead in a bear market, which is like playing dead when you suddenly encounter a huge bear in a jungle. In the financial jungle, playing dead means putting your money in debt instruments, be it bonds, debentures, government securities, bank deposits, etc.
If you have a diversified portfolio of investments that includes other asset classes such as debt, bullion, real estate, etc. it will help mitigate the risk of equity exposure. A proper asset allocation will help you to cushion the financial impact of a crash in the equity market. Your equity exposure should only be to the extent of your ability to sustain losses.
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