Different lessons from different assets in 2009
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As an investor, you always look for the past performance before putting money. So, if you are in such habit, it is not a bad idea to look at the year just gone by, as it was a very special in recent times.
The year taught us a few things and in fact, there were different messages from different assets. To help you make a better judgement of different instruments, here is a brief on lessons you could keep in mind.
Is equity trading bad for your financial health?
Equity: The asset is always risky but if you don't have the holding capabilities, don't bother to invest in. Sell or buy according to your need and not according to the trend in the stock market
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. The year 2009 has shown that equity markets would be the first to crack when economies slip up and are also the first to spot recovery signs. While real economy showed signs of recovery in the third quarter of 2009, the stock market began to recover from second quarter.
The simple strategy for equity market is to think long and not resort to panic selling. After all, those who have patience will walk away with super profits.
Are MIPs of mutual funds a safe bet?
Property: Till recently, property was an asset, which gave handsome returns over long term. But 2005-07 changed the story and made investors forget the basic principle of real estate investment. More importantly, investors began to treat property as a liquid asset and resorted to trading in it like any other asset.
The year 2009 gave the much needed wakeup call and has a clear message for all. When you are creating an asset, which is illiquid have plenty of patience to turn into liquid (sell). If you have taken the loan option to buy into property don't jump into sale of property as you may end up losing if you take the interest component in your costing.
Remember the lessons learnt from the gloom
Gold: Equity and property may help you build wealth faster than other instruments but every asset has its own cycle of fortunes. Gold had a fantastic run in 2008 and 2009 when most other markets were facing turmoil.
It does the job of contrarian winner by helping you make money when chips are down for every other investment option. So, you need to allocate some money for this metal in your portfolio as it ensures stability. But don't forget the fact that volatility holds good for this investment product too and price moves both ways. The best strategy is to keep off from it when it is heated up with rising demand.
Debt: Ignore debt at your own peril as earning returns is not the only motto of investment strategy. Every investor faces a point in life when he needs comfort with the instrument because of its stability and no product other than debt can ensure it.
Debt, like other instruments, can be volatile with its returns and the year 2009 has shown that returns can slip in a matter of 12 months. So, keep debt in your portfolio according to your needs, portfolio size but not as a product for long-term wealth creation.
The author can be reached at srikala.bhashyam@gmail.com
The views expressed in the article are the author's and not of Sify.com
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