Why Is it a Smart Decision to Do Friendship with Volatility?
No single day went in the last year without some market expert expressing concern about the lack of volatility in the financial world, particularly mutual fund industry. The issue is that we, as investors, have developed huge expectations from the market seeing the scenario in the last few years, and the reason can be anything from rising market intrinsically to lack of volatility.
This created a Goldilocks-like environment which many assumed to be a recipe for disaster. Let’s see why our experts believe it to be a good thing. And also, how investors can shield themselves from the upcoming market challenges.
Volatility? It’s the New Normal
The conditions in 2017 were what was considered as abnormal. There could be several apparent reasons behind it, including:
- Federal Reserve was too open with what it was going to do, when, and how.
- Trump administration was more focused on creating market-friendly moves such as cutting down on corporate taxes and reducing the implied regulations.
That's why when the conditions are getting back in place now; people are finding the market rides bumpy and gut-wrenching. To this, the experts at MySIPonline, believe that investors should be happy about it. As with the rise in market volatility, market will sweep off the bad stocks and be healthier again. This will lead to better price discovery as it would be easier to differentiate between a good and a bad stock.
Current Scenario in India
The Union Budget 2018 dampened the trust of the investors due to the reintroduction of LTCG tax with the retaining STT. Further, the fiscal slippage – actual fiscal deficit at 3.5 percent against the target of 3.2 percent was also a bit disappointing but is not a cause for alarm. It is also believed that the macro conditions are stable and they are all set to improve.
One of the crucial factors that is likely to add to the market’s volatility is politics. The impact from the outcomes of the upcoming elections could be huge.
Even the result of the next general elections is less predictable considering the situation now, and the market doesn’t like such uncertainty.
What will be the Major Reasons for Rising Volatility in the Future?
The following four factors can be the cause of upcoming headwinds in the market:
- Fiscal slippage
- The rate hike by the Federal Reserve
- Spike in the crude oil prices
- Geopolitical issues
What Should Be the Investors’ Investment Strategy?
Considering all the points listed above, investors should opt for a conservative and defensive investment strategy. It’s a good time to accumulate stocks on declines and continue with SIP investments. For some time, mid caps and small caps should be avoided.
Investors who are willing to invest with a long investment perspective can invest in balanced funds through SIPs since they perform well during times of high volatility.
Fearing the rise in volatility is not an option, what you should do is connect with your financial advisor to seek advice on the same. You can also reach out to us as at MySIPonline, we provide recommendations on the best performing mutual funds considering individual needs.
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