Experts tell you what to do in a volatile market

By Morningstar |  11-03-20 | 

The headlines read like Armageddon is here, with the Sensex plunging on Monday, oil prices collapsing, the Yes Bank saga, all against the scary and uncertain backdrop of the novel coronavirus.

It’s easy for investors to think they are on the verge of seeing their savings wiped out.

There is no reason to sugar-coat the severity of the situation. But it is here that advisers can offer their clients important perspective.

Suresh Sadagopan, Founder, Ladder7 Financial Advisories

We usually don’t make changes to our portfolios based on news and events unless there is a change in client’s goals. So we have been advising our clients to stay put.  The recent events witnessed in the banking space might actually help mutual funds because bank fixed deposits and bonds have been traditionally perceived as safe.

Venkatesh Puthige, GOFP Wealth Solutions LLP

We regularly educate clients by sharing data and educational articles on markets and investments. External events are not in our control. We have to control client behaviour. Clients have understood volatility and are not reacting. In fact, we have started moving some portion of client money from debt to equity funds in response to the correction. Factors like fall in crude oil prices and corporate tax cuts will help India.

There was extreme optimism three months back and now there is pessimism. Mean reversion happens.

In volatile times like this, we were expecting debt to help cushion the fall but there is more panic in debt funds than in equity. Credit rating agencies and fund houses need to be more vigilant when debt instruments start falling below AA grade.

We had recommended gold as part of asset allocation which has helped our portfolios. Gold has delivered 13% return over a 3-year period.”

Vinod Jain, Founder, Jain Investment

Our clients are aware that markets are seeing a correction worldwide due to the fear of the Coronavirus. With that background, no one is panicking. They understand that the market will bounce back later.

If one is willing to take risk and has an investment horizon of 5 years, invest in equity because there are chances of recovering your money.  In debt, the chances of recovery are low.

I have been recommending gilt and income funds to my clients. These funds have delivered decent returns. Fall in crude oil prices, low credit growth and lack of capex has brought down the yields which has helped these funds. If someone wants to put lumpsum money at this juncture, I recommend them to spread it across large and mid-cap funds.

Christine Benz, Director of Personal Finance, Morningstar

As the market has been gyrating lately because of worries about the economic impact of coronavirus, market experts have been putting forth opposing views about what to make of it.

Some have asserted that it's a buying opportunity for long-term investors. Others caution that the worst is yet to come. The right answer, of course, will only be apparent in hindsight. But that doesn't stop many experts from making these pronouncements with a crazy-making air of certainty, as if they actually know what will happen next. Market prognostications are hard enough to make for long time periods like the next 10 years, but next-to-impossible for the very short term.

You must be willing to tolerate some uncertainty--and indeed risk--in your plan if you want to out earn the inflation rate. Over time, higher-risk assets, namely stocks, have returned substantially more than guaranteed and low-risk assets, and it's reasonable to assume that pattern will hold in the future, too. The key is to think through how much uncertainty underlies a given financial level. If there are many uncertain variables swirling around, your job is to ensure that your plan can still work even if those variables don't play out as you're expecting them to.

When it comes to uncertain variables, focus your energies on what you can actually control. Upping your own investment contributions is guaranteed to improve your investment plan and can go a long way toward making up for lackluster investment returns and providing peace of mind in volatile times.

Andrew Lill, CIO, Americas, Morningstar Investment Management

Once again stock markets are dominating the headlines, as concerns about the economic impact of COVID-19 draws the focus of investors from the long-term horizon to the here and now. Recently, the OPEC nations are preparing for potential oil-price war, which has added to the uncertainty in markets desperately looking to recalibrate fundamental implications.

In these situations, it is natural for us as humans to react to alarming headlines and to panic when events such as this outbreak occur. However, we believe that taking a more measured approach and longer-term perspective is critical at this time. Crucially, the trick for investing success is to generally go against the crowd.

It seems to be a time in the cycle again where we need to be very careful in our actions. The temptation to seek shelter is behaviorally natural but often results in adverse outcomes.

Our message is simple--keep your eyes over the coronavirus horizon and fixated on your investing goals. Invest smart and often, letting the power of compounding and dollar-cost averaging take you steadily close toward your goals.

Market volatility is unsettling, but nonetheless normal.

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