Market Volatility can hit you anytime, every time
Here are a few ways to help reduce its impact and protect your goals:
- Learn to prioritize
Whenever the markets go down, investors are told to ride out the volatile phase and to wait patiently for the markets to rebound. However, there are some goals you just can’t put on the backburner. What if your kid’s college semester is about to start and you were banking on your investments to pay for his/her fee? This is where prioritization of goals comes into the picture. You must segregate your goals into critical and non-critical categories, and then approach them accordingly. The critical goals may comprise of things like children’s education, down payment for home etc. While the non-critical goals may include things like a foreign vacation, housing renovation, car upgradation etc.
- Reduce the risks associated with critical goals
After you’ve categorized your goals, assign appropriate asset classes to each one of them, depending on the time at hand and the criticality of the goal/s. So, for instance, it may not be a wise idea to invest heavily into equities for a critical goal like kid’s college expenses, even if it’s few years away. Furthermore, you may need to make special provisions for each one of your critical goals. If your asset allocation strategy is 40% debt and 60% equity at present, you may need to revise it to 50-50 if the particular critical goal is 8 to 10 years away. The financial products invested into for your critical goals must also be selected very carefully. Experts suggest investing into large cap funds for such goals.
- Always be ready with a back-up plan
No matter how well you prepare yourself, you can never put an exact price on your goals. Kids are being exposed to newer and never-heard-of-before education avenues these days. For example, foreign education wasn’t even on the radar of an average parent 20 years ago! So, don’t be surprised if the goalpost itself has moved! Anything can endanger the accomplishment of your critical goals – the rupee may depreciate or the college may shoot up its fee. Hence, it’s important to have a backup plan ready for such eventualities. You can keep a ‘wealth accumulation’ goal for supporting your critical goals. However, in most cases it’s the funds saved/invested for the non-critical goals that work as a backup plan. Therefore, it’s also the number of non-critical goals that may determine the extent of risk you can take with your critical goals.
- Rebalance if needed
Setting goals and then following them up with an investment strategy is only half the work done. You must also continuously monitor the progress of your investments and evaluate your portfolio on a regular basis. Experts suggest that this should be done at least once in every six months. Such periodical reviews will inform you whether you should revise your asset allocation or not. It may be that the equity or debt portions of your portfolio have fallen or risen beyond their pre-planned levels, and you may/may not need to make appropriate changes depending on the criticality of the underlying goals.