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Where and how should you invest in a slowdown? Keep these tips in mind

Where and how should you invest in a slowdown? Keep these tips in mind

Where and how should you invest in a slowdown? Keep these tips in mind
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By Rishabh Parakh  Sept 2, 2019 8:33:57 AM IST (Updated)

The constant reports of low corporate earnings, job cuts, liquidity crunch and the decelerating demand has turned many investors press the panic button and doubt their investing decisions.

How is the josh? Low sir, isn’t it? Well, this is the answer I am getting from investors in most of my recent interactions through my columns and seminars. The constant reports of low corporate earnings, job cuts, liquidity crunch and the decelerating demand has turned many investors press the panic button and doubting their investing decisions. They are also thinking about what their investment strategy should be.

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Let us understand this in detail:
Strategy for mutual fund investments
People who had started their stock or mutual fund investments in the last two years and even the SIPs which were started some 2 or 3 years ago are in negative zone. This often prompts investors to think about stopping their SIPs. They get tempted to take out their investment from the stock market or stop investing more.
The strategy should be to use this time to revisit your asset allocation and financial goals. If you need immediate money to fund any of your financial goals there is cause for worry but not otherwise. In fact, the market fall can help you make more money; imagining that the market will only go up from the date you will invest is a myth, rather it is a very inherent nature of stock market to be volatile which helps make more money provided you play your cards well. In fact, the market slowdown is the best time where your SIPs will actually work in your favour, because every SIP will fetch you more units and help you create a bigger corpus when the market starts recovering.
For your lump sum investments which you want to invest, follow STP route, looking at the market and near future, go for one year STP to systematically invest and beat the volatility factor. It is a time where you should also check your return expectation from the market given the next couple of years. A return of 15 percent or more on the basis of past performances may not be logical to expect in the next few years, you need to be realistic and align your portfolio expecting a return in that fashion.
One more interesting thing is to look out for the mid-cap funds in the next 6-8 months because this category is corrected big time. This is the time to invest in these funds gradually, via SIPs and STPs. Going forward the experience of a mid-cap investor of last three years will be different for a mid-cap investor in the next 3 years, so slowly get into this space to help you make more money. If your risk profiling doesn’t allow you to go all out with mid-cap investments, go for a mix of multi-cap funds and Index funds.
And as far the investment in the large-cap funds are concerned, go for the index funds, invest in nifty 50 and also don’t forget the junior nifty, means the next top 50 stocks of Indian stock market. Both these together can make you a part of top 100 companies in India and reduce your expenses overall. Also, this would work well in present times, given the fact that it would be difficult for a large-cap fund manager to constantly beat the returns of index funds especially post Sebi’s categorisation of mutual fund schemes.
Real estate investment plan
The real estate sector has not generated any returns in the past few years, it had a fantastic run from 2003 till 2013. Plus given the slowdown and the uncertainty about job, bonus, and getting the incentives, investing in a real estate sector by taking a loan is a strict no-no. You will be paying around 8 percent to 9 percent interest on your loan against an asset which may appreciate by 4 percent to 5 percent in the next few years, and that too looks dicey as of now. So, the math doesn’t work in your favour. Unless you are getting into a distress sell or a deal, investing in a property may not make sense at this point of time. If the property in question is for your own residence then it is a different matter; in fact you may be able to buy a property at a good discount because it is a buyer’s market. So, take your call accordingly, whether you want to buy a property for your own residence or purely as an investment.
Should you invest in gold at the current level?
 Yes, you can, provided you are not investing more than 10 percent or so and the decision to invest in it is based on your financial planning and not due to the fact that everyone else is buying in anticipation of gold prices to go up in future. Ask yourself, why do you invest in any product, isn’t it for meeting our financial goals? So, investing in gold should be any different. Chances of meeting your financial goals are much higher when you have a defined set of targets and you execute them successfully. The decision of buying gold should be based on your financial planning only, rather than on the basis of emotion, tradition or what is going on in the market. Buying due to those reasons can put a dent in your financial planning. Make sure that your investment in gold does not exceed 5-10 percent of your overall investment portfolio.
Avoid investing in physical gold unless you want to use it as jewelry as there will always be a problem of its safety, storage and making charges. Alternatively, you can invest in gold via gold Exchange Traded Funds (ETFs) or through mutual funds. One more option is to invest in Sovereign Gold Bonds (SGBs), but these are open for investment for a limited period only. All these options are good as you would not incur any making charges. You can also sell or liquidate these investments instantly. Whatever the means of buying gold, keep in mind that gold investment should be a small part of your financial planning.
Investment in fixed deposits and liquid funds
If you are risk averse or the timeline to meet any of your financial goals is immediate say a few months, a year or two then it would be prudent to park your surplus money in liquid funds and bank deposits. You can go for a combination of liquid, debt and fixed deposits, go for ultra-short-term funds and flexi bank deposits for a period up to 6 months. Anything beyond 6 months, go for short-term mutual funds.
Don’t press the panic button
Use this slowdown phase to reassess your portfolio and realign your investments and strategy, don’t press the panic button and always remember the fact that market will give you good returns, bad returns, low returns and even negative returns and for making great returns, you need to stay invested for long term. And reallocating your investments as per the market dynamics, because invest for long term and forget it mantra may no longer work. Like a famous automobile advertisement says, fill it, shut it and forget it. That and the age-old logic of invest for long term may no longer work because the world is changing fast, even as we speak. So, you need to be proactive and keep focusing on re-allocating your assets based on your financial goals and deadline you have to meet them; that strategy will help you grow your money in any conditions, be agile, be pro-active.
Also, remember the fact and what history suggests, the market does well and offers great returns immediately after any slowdown or a recession kind of situation. The key is to use this time to create a portfolio of a lifetime which works under all conditions.
Rishabh Parakh is a personal finance strategist and Chief Gardener of Money Plant Consultancy, an established firm providing tax and wealth management services across Maharashtra, Singapore and the UK.
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