Since the coronavirus pandemic swept the world in early 2020, the world’s financial markets have had a pretty rough time. The Indian stock market in particular has had a turbulent journey with deep corrections and volatility over the past two years. Major market indexes hit a 7-year low right at the start of the pandemic in April 2020, collapsing nearly 35% of investor value in a matter of weeks.
Such a sharp drop in values, the steepest in recent years, made market experts uncertain about a return to the path of growth. It was a widely held belief that it would take the market at least 3-4 years to get back to the levels from which it fell. However, markets climbed nearly 2.5x as the recovery was too sharp and unexpected, proving everyone wrong.
Moreover, all of these events – steep decline, consolidation and rapid recovery – unfolded within 18 months while the country grappled with the second and deadlier wave in 2021. Investor wealth has doubled in no time as markets regained lost ground, adding about 55% of the value as it hits an all-time high.
And in early 2022, as the Russia-Ukraine crisis came to the fore and unleashed global tremors, world markets took another hit. At home, India’s benchmark indices lost almost 20% of their value in the first half of this year due to global and domestic macroeconomic situations. However, over the past month, Indian stocks have regained more than half of the lost value.
Also read: Why you should invest in international funds and how to do it
Investors who’ve seen these two extraordinary years have a lot to digest when it comes to the fundamentals of how to scale up investments to meet their financial goals. What’s easy to learn is that investors who stayed put during these turbulent years managed to create enormous fortunes. On the other hand, those who exited the markets or could not muster the courage to enter the market in the face of mounting uncertainty were unable to take advantage of the unique opportunities that the markets offered.
Here are some lessons investors should learn from the past two years:
Panic prevents wealth accumulation: Human psychology plays a crucial role in dealing with the “greed and fear” factors in investing. Often the majority of investors tend to make decisions in panic mode. As a result, several investors took the exit route during the market’s free fall. They missed the immense wealth-building opportunity.
Adhil Shetty, CEO of Bankbazaar.com, says: “The first lesson is don’t panic. Monitor the situation and refrain from making hasty decisions that could have a long-term impact on your investment prospects.”
Focus on goals with patience and discipline: Investments aim to achieve one’s financial goals. Each target has a gestation period ranging from a few years to several decades. Investors need to remain invested and focused on their goals for the period. It is wise not to pay too much attention to market noises that may unsettle you. It is worth remembering that patience and discipline are key to a good investment experience.
Volatility is Opportunity: Volatile times are the best time to build assets at lower costs. Volatility should be used as an opportunity for long-term wealth accumulation. Volatility adds dynamism to markets and helps investors generate higher returns.
Shop at Dips: The strategy of buying on dips through additional buying adds clout to your investment by significantly lowering your investment costs. It is worth noting that long-term wealth can only be created by acquiring assets at lower prices. Market corrections, particularly deep and steep ones like those seen at the beginning of the pandemic, offer suitable opportunities to build wealth over the long term.
Fixes are temporary: It is not wise to stop or withdraw your investments just because the market is falling. Unless you really need money or are nearing your financial goals, there’s no reason to touch investments. It should be emphasized that various market cycles with corrections, volatility and sharp upward movements are the components of the market. A market without these would not be a market at all. One must understand and acknowledge this fact.
“One should never forget that corrections are temporary, but growth is permanent. It would be best if you made an effort to stay put during the corrections,” adds Shetty.
Do you have an asset allocation strategy: Apply an asset allocation strategy regardless of the market situation. It reduces the risks that arise from the concentration of investments in a specific asset class. Asset allocation helps an investor get the best value from multiple asset classes based on market valuations. Historically, it’s a proven strategy that keeps you relatively free from market-related stress while creating wealth.
These strategies can help you build your profile based on your needs and risk appetite.
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