Stock Market Investment in times of Covid-19: Time to rebalance your portfolio, stay invested for long term

Stock markets are hard to predict. The best way to time the market is to remain invested in the market.

Just a few months ago the markets were trading at all-time highs. The black swan named Coronavirus came out of nowhere and spoiled the bull party. The word social distancing was unheard of until the virus emerged. The impact of the virus grew larger with each passing day, swallowing the growth made by economies in the past decade.

Investors have to bear the brunt as markets began long slither downhill journey which unnerved even the most seasoned investors. The valuations were tossed like a paper in a storm. The businesses came to a standstill. The thick clouds of uncertainty enveloped the world economy.

Investors must remember that a bull market can last for a decade, but bear markets have short shelf-life. Historically, even the worst bear maker has not lasted beyond 300 days. Uncertainty and investing share an eternal bond of friendship, remember, the best things are born out of misery.

Whatever the cost of economic uncertainty, in the long term markets tend to be positive. A smart investor is the one who thinks logically, and not irrationally. After a 369% rise in a decade, the fall of 30% should be celebrated. Instead of panicking and trying to fight the market, one must take a step back and let the volatility run its course.

A smart investor is aware of the treacherous nature of the markets. In times of volatility, he tries to find another route to victory. The best response to volatility is not to sell off investments, but to rebalance the portfolio to protect long-term goals. Rarely good stocks are available at a discount, and the present correction has provided a rare opportunity to accumulate good stocks at a sizeable discount. At a time when NIFTY is trading below its 10-year mean average, this can be one of those rare opportunities that present itself after every few years.

Wealth is not created by predicting peaks and bottoms. It is created by discipline. When it comes to investing, the time is now. If you are a SIP investor, you must set it and forget it. In a bull market, every investor feels he knows it all. Conversely, in bear markets, everyone feels like he has lost everything. Simply looking at returns every year is like having a gambler’s mindset, which can prove costly in the long run.

Investing is not about market levels. A blue-chip company available at a discount is a strong indicator to buy. Heavily discounted stock prices indicate irrationality, and markets are always rational, they will find the fair levels again. Successful wealth creators always take advantage of rupee cost averaging. This is the only strategy one needs to create wealth, and it is the one that works.

A realistic investor doesn’t expect overnight returns. He balances the impact of volatility through efficient asset allocation. In volatile times, the right mix of assets, i.e. equity and debt, helps to improve overall returns in the long term. For someone having an investment horizon of 20 years, volatility should not matter at all. In fact, a closer look at successful investors reveals that during frequent volatility, a 60/40 asset allocation strategy helps them to come out on top. A good asset allocation strategy wins because of compounding returns in the long term. The beauty of compounding returns is that it does not deviate substantially from the mean in a longer timeframe.

Just a look back in 2008 reveals that mass panic is the sign of an impending bottom. Markets are hard to predict. The best way to time the market is to remain invested in the market.

(By Abhinav Angirish, Founder, Investonline.in)

Disclaimer: Views are personal. Readers are advised to consult their financial advisor before making any investment.