Widely read:
Zoomers, stay warned: Winter is coming - literally and figuratively.
As we prepare to freeze in the wintry cold, 2023 is cooking up a storm to ensure our investments are knocked out ice-cold, thanks to a frosty cocktail of sustained recession in the West, a resurgent COVID and surging living costs.
As a result, a staggering 77 per cent of fund managers are bracing for a global recession next year, as per a Bank of America survey -- the highest since COVID came knocking in 2020.
And since a lot of you have been in the market for a couple of years and have never faced the market's wintry pessimism, we remind you of certain home truths and how to overcome them.
1. Volatility and markets go hand in hand
Bear markets are inevitable, and it's no different this time. So, don't get freaked out by a falling market because even though they are yo-yo in nature, they eventually go up in the long run.
2. Markets owe you NOTHING
Sounds harsh, but it is what it is. Set your expectations right. This is where your temperament will come into play; this is what will separate the wheat from the chaff.
3. Living is the real thing
You may be bored to death reading markets are volatile but living through that experience is a different ball game altogether - something that is aptly explained by Morgan Housel, the author of the highly recommended The Psychology of Money.
Now that we have set the context right, here are a few things that you need to do and not do:
Dos
First things first, there is no need to panic sell your mutual fund investments. In fact, it is a good time to buy more and average down your cost price of the units.
Let's assume you invest Rs 1,000 in a mutual fund that costs Rs 100 per unit. In this case, you could buy ten mutual fund units. But if the market falls and the units are available at Rs 80, you'd be able to buy more units (12.5). Follow this strategy only if you have conviction in your investment.
So, start an emergency fund. Keep 6 to 9 months of your expenses in a separate account. It can be beneficial if things in your life go oopsy-daisy for a while.
Pro tip: Don't have internet banking or card transactions for this account.
Instead, park your money in debt funds, such as liquid funds or short-duration funds. These options will provide you with stability and steadier returns. Plus, they are tax efficient too.
Don'ts
It is tough to have conviction when markets are down. Constant news, views and opinions can clog your mental bandwidth, especially when the markets are bleeding red.
Let's give you one gyaan: don't fall for them. Stick to your guns and follow your long-term strategy. It is easier said than done, but step back and look at the bigger picture.
Guess what? Futures and options in trading are also a form of borrowing money. You may get sucked in because you have to pay only a fraction of the cost to earn manifold returns, but the flipside is more damaging. That's because if your bet turns sour, your losses are also manifold.
Ask around in your circle, and you'd be surprised by the number of people who have burnt their fingers in futures and options.
That said, we are not saying you should be 'boring' with your investments. You can let your hair down, too, which is why we suggest you keep aside a certain amount of 'fun' money.
It should ideally be 5-15 per cent of your portfolio, and you should mentally ring-fence that amount to be as good as 'lost' money.
A parting shot
Winter is coming and now that we know what's coming with it, let's get with it.
Don't let these cold comforts sidetrack you from your long-term goals.
And since we are being liberal with our GoT references, let's use another one to prepare ourselves for this long and harsh winter: "[What I don't know can't hurt me] is a stupid saying. What we don't know is usually what gets us killed."
Suggested read:Beware, these biases might be hurting your investments
New episodes every Friday
