Advice for retail investors in a declining market

As the global economy experiences some of the most brutal drops in history amid the coronavirus pandemic, it can be hard to believe that maybe now is the time to invest in the stock market.

The Indian economy is hit hard by the pandemic which shows no signs of slowing down. However, if you look past these red flags in the stock market, there is an investment opportunity for retail investors in different asset classes. One should be very careful before exercising an investment option in such a situation.

Here are some tips that a retail investor can follow during such a downturn in the economy:

Invest in what you know

The basic fundamentals of investing also apply in these volatile market conditions. You have to invest in the assets that they know and try to maintain a diversified portfolio.

You shouldn’t rush to invest in a stock that might look attractive after dropping 20-30% and spend time getting a bigger picture of the business before you park your money. The ups and downs of the stock market are not permanent, the market will retreat in times to come. Any investment decision made in the midst of such a drop might not work for you in the long run, so it is recommended that you monitor companies and stock announcements before investing.

Look for red flags

It is important to distinguish between companies whose stock prices have fallen too much due to market turmoil and those which have sold stocks because they were facing sharp declines due to the Covid epidemic. 19.

You need to identify undervalued stocks in the market, and then consider how the pandemic is affecting those stocks in the present or in the future. In addition, the financial stability of these companies should be taken into account before making an investment decision.

In such a degraded economic situation, investors must also ask themselves whether a company’s economic model allows it to better control the crisis, or if its prospects are largely (or even definitively) compromised by a downturn in the economy.

Avoid over-trading

You should avoid over-trading, that is, buying or selling excessively stocks in this very uncertain stock market. It can get expensive for you to keep moving a large percentage of an investment portfolio because every time you buy or sell you usually pay a trading fee, a broker’s commission, and a securities transaction tax. Any slicing or modification of the investment portfolio can eat away at all of your long and short term returns.

Investors should follow these recommendations before investing in the current market.

You should build a diversified portfolio with different asset classes such as stocks, debt, gold and other assets that match your risk profile and financial goals.

Even if you have excess cash, you should consider structured investments that will help you manage the risk of a possible drop in stock prices above a certain level.

The cost of actions is reset now, and there is no idea of ​​resetting the benefits of those actions. Markets are expected to take another two quarters to decide on the good valuation of stocks reset today. So analyze the market conditions and then put your hard earned money on the stock market.

In summary, don’t over-invest in stocks if you’re not prepared to give the economy enough time for a recovery. You could risk your money if you invest with the expectation of quick returns, as it is very uncertain how long this pandemic will take to subside and the savings to recover. So, stay safe and invest wisely!

(Writer is Founder and CEO – ClearTax)


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