Will Market Turbulence Affect Your Financial Goals?
Oct 26, 2018

Have you taken the time to consider what your financial goals are?

Everybody has some aspirations and dreams.

But can you afford to let the market fluctuations affect them?

Certainly not!

Yet, many investors struggle when equity markets pass through a rough patch (as they currently are). The reason for this is lack of clear understanding of what their financial plan is, and whether the investments are well-aligned to accomplish the financial goals.

Often, investors end up mimicking the portfolio of their friends and relatives, not recognising the fact that planning and investing is an individualistic exercise.

[Read: Why Mimicking Your Friend’s Investments Can Be Risky]

If you are one of them, the current stock market fall must have affected you significantly.

But there’s good news for you.

In this article, we are going to give you some simple tips to repair the damage that market volatility has caused to your portfolio.

First, you need to assess the factors that have resulted in the poor performance of your portfolio.

Is it just the market movement or your imprudent approach to your investment planning?

If you had invested in a particular asset class or an investment instrument or a product just because your friend invested in it; then you can’t blame the market movement for the loss you suffered.

Your friends/relatives might have different priorities and their risk appetite might vary as well, so as their present financial situation. So, why follow their approach?

In our view, it would do better if you take complete control over your personal finance by seeking professional help.

It’s possible that you are doing everything right, i.e. based on your financial goals you are planning prudently and investing taking into account your risk appetite, investment time horizon, investment objectives and so on. However, in spite of this if your portfolio is falling, there could be two reasons:

  1. The fall could be purely on account of the market movement; and/or

  2. The product/investment instruments held in your portfolio may be inefficient and generating sub-optimal returns

You can do very little about the market movement since you may have already diversified your investments across the asset classes depending on your risk appetite and financial goals.

But if your investment portfolio is constantly underperforming benchmark returns and peers in the category, then you need to take a serious look at your portfolio and rejig it.

(Image source: unsplash.com)

On the extreme, it might also be possible that you do not have even a financial plan in place and are investing randomly to fulfil your goals, which too might be rather vague and less thought through. So then, here are key things you need to do:

  1. Identify your financial goals and determine the amount needed to satisfy them

    If you have set your financial goals smartly, you won’t look at the markets and subsequent movements in isolation. You would rather focus on your goals. For this reason, it’s important to identify your financial goals, ensure they are S.M.A.RT. (Specific, Measurable, Adjustable, Realistic, and Time-bound) and evaluate how much money you would need in future to achieve the goals.

    [Read: How to Set S.M.A.R.T Financial Goals]

    For example, if you aim to provide for your children's education and wedding expenses, consider what it costs today and calculate this cost by taking into account the average yearly rate of inflation. Start by calculating the amount you want to achieve, when you need it (the investment time horizon you have in hand), and work towards it by investing sensibly. Do this exercise for each goal.

  2. Direct your financial savings towards your goals and consider your risk appetite

    If you invest randomly without being goal-centric and recognizing your risk appetite, you could be sailing in an ocean without a sense of direction.

    Hence, align your current investments towards your financial goals, viz. buying a dream home, a car, funding your children's education, their wedding expenses, your retirement, among others.

    Note that, ad-hoc investments lead to improper asset allocation.  

  3. Chart out a right asset allocation plan

    Asset allocation is one of the most important amongst all. It is a strategy in itself, where your hard-earned money is invested in various asset classes such as equity, debt, and gold, with an aim to diversify while you endeavour to accomplish the envisioned financial goals.

    It would be sensible to allocate your investible surplus into various asset classes, with due consideration to your age, income & expenses, assets & liabilities, risk profile, investment objectives, and nearness to financial goal horizon. And do not forget to make tax-efficient investments. This way your investments would be well-aligned, and provide a clear course in the path to wealth creation and accomplishing financial goals.

    If asset allocation is astutely crafted, it can reduce the risk and optimise returns on the investment portfolio, plus address the liquidity aspect of your portfolio while being attuned to your financial goals.

    So, based on the ideal asset allocation and the investment horizon of your financial goals, select appropriate investment avenues. For example, if you have a long-term investment horizon of 5-10 years or more, maintain a higher allocation towards equity.

Once you follow the above diligently and have selected investment avenues with utmost care and prudence, you need not be swayed by any short-term aberrations. Stay focused; don't panic over market volatility because that’s the very nature of the equity market.

To attain financial freedom, above all, you have to be patient and determinedly steady. Trust that you will get there. Growing wealth is a gradual process. So, don't attempt to time the market; it can prove hazardous to your wealth and health.

If you have long-term investment goals, continue your investments irrespective of the short-term market movements; because historically, over the long term, equity has delivered inflation-beating returns (on an average). 

All it needs is a little time and effort to create an investment portfolio customised for your needs. You just require to have the right approach and patience.

Reviving your existing portfolio and creating a financial plan would be a good starting point to achieve your financial goals from the downsides of the market.

Editor's note:

To ensure that bad market conditions aren't taking a toll on your financial goals, we strongly recommend that you avail of PersonalFN's Mutual Fund Portfolio Review service

PersonalFN's ethical and unbiased investment advisers will comprehensively review your mutual fund portfolio. Here you will get Buy / Sell / Hold recommendations on your existing portfolio, keeping in mind the five points discussed in this article. Revamp your portfolio based on your requirements and risk profile. 

Don't delay your investment health check-up, opt for it now!  

Happy Investing!

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