Tips to handle stock market pressure

Srikala Bhashyam Every year, a fresh set of investors walk into equity market with the hope of making money. For some, the motivation for the entry is the profits made by friends and relatives. For many others, the sheer media exposure puts pressure on them to have a go at equity.

While equity has its own element of risk and does not offer straightjacketed solutions for all, the allocation, the choice of stock or the amount of allocation depends on individual comfort. In fact, it need not be the same year after year too as stock markets are one of the most dynamic investment options at all times. Hence, it needs a smart approach and a disciplined effort.

Is equity trading bad for your financial health?

Be prepared for volatility:

Unlike many other investment options, equity is one of the few assets, which offer plenty of volatility. So, the stock you choose is bound to go up or down after your purchase and as an equity investor, you need to be prepared for its volatility.

If you are getting into equity because your colleagues or relatives making money out of it, it is not the solution. Instead, look at equity as a long term need for your portfolio and chances are that you would make money. And, if possible, allocate more when the world is shunning away from it and vice-versa. Chances are that you will make more money than your peers!

Quit when you have to:

While the prospects of good returns entice you to have a go at capital markets, the lure to earn higher returns can also pose problems. As every investor would tell you, he has never got it right with the timing of exit. Profit booking strategy can be two-fold—one is to fix a cap on the percentage of profit and the other is to exit according to your fund needs.

Are MIPs of mutual funds a safe bet?

While the former can be adopted for short-to-medium term portfolio, the latter can be for the long-term portfolio. It is also more challenging to take a call on the exit of long-term portfolio, as the requirement of funds is pre-determined. But the market trend may be tempting for the investor to continue with the portfolio.

For instance, an investor who had invested since 2000 for his child’s education or marriage slated in the year 2010, might not have considered profit-booking till 2009. The events of 2008 would have shattered the investor confidence and chances are that he would have pressed the panic button in the same year though markets have recovered nearly 70% since then. It is human to get worried when the fund you set aside for a particular need shows signs of erosion.

Remember the lessons learnt from the gloom

Hence, follow your own goal needs rather than market trend when funds are needed at any cost. One of the best options is to book profit at regular intervals and transfer the same into a fixed return product, which can take care of capital. Or opt for one of the new age products through mutual fund or insurance, which offer trigger facility and help in better management of volatility.

Go for a combo:

No single stock or equity mutual fund can maximise returns and on the contrary, a basket of stocks or mutual funds can offer better risk management for wealth creation.

What is best? SIP or lump sum

One of the best options is to divide your portfolio into long-term and short-term portfolio and choose different schemes or stocks for both. If you are a direct equity investor, look at active trading for your shot-term portfolio but use the profits to park in a non-equity asset.

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