Human fallibility is a reality. The real strength of your character is in tackling failure and rising from it. Historically, humans have achieved such a feat from life-threatening situations. When it comes to money, the fear of failure seems to be a constant. Nobody likes losing money. If you follow an investment strategy, it does not work; you must go back to your initial assumptions and make changes.
However, that rarely happens in personal finance. Indian households barely own financial assets. Three-quarters of households in India lock savings in real estate and gold. Those who own financial assets mostly put money in bank or company fixed deposits. A few courageous ones decide to venture into the world of stock markets.
A typical cycle of investing in India starts by you appreciating someone making money in the stock market or through mutual funds. You read a bit and then decide to do it yourself. You take advice from a lot of people and finally make that first transaction.
If your strategy works, you continue following the same plan until you suffer your first loss. You realise your investment is not showing any signs of a recovery. You decide not to invest more. After a breather and a realisation that you have recouped your losses by earning more, you feel you can give the stock market another chance. You reinvest. Any failure here leads to you going into an abyss. You take a vow that you would never return and park your funds in gold, property and real estate.
All of that explains India’s poor investor participation. A large section of India is not bothered by developments in the stock market. Many would argue that Indian households have escaped the current turmoil in world stock markets by staying out.
If you have never been an investor in the stock market directly or through mutual funds or a unit-linked insurance policy, you are not affected by the dramatic fall in stock markets due to the COVID-19 virus.
Your physical assets are with you and no matter their notional financial value; they are going nowhere. However, situations like these open up opportunities. So many people were eager to participate in the stock market when Nifty 50 and S&P BSE Sensex were trading at a record high. In a panic attack, financial markets are witnessing a flight to safety.
Money is going into gold or government bonds all over the world. The rich in India have panicked too. Foreign investors have pulled out money from India and other equity markets and put money into US treasury bonds.
Many are sitting on the sideline. Those flush with funds are perhaps plotting a strategy to get in again. If one goes by the analysis of the present crisis, it may take weeks or months for the world economy to recover. Over the next week, the World Bank, International Monetary Fund and other world organisations would present their assessment of the CoVid-19 threat to the world economy.
The moment financial markets get a whiff of stability; they would bounce back in no time. What you should do, first of all, stop panicking. There is no need to take out your money from the stock market or financial assets in a hurry. You don’t have to stop your SIP too. It is a good idea to continue with SIPs to benefit from the low cost of shares now.
As markets see a slow recovery, you can pick up the same equity assets cheaper than earlier.
Index investing is the right approach. Instead of indulging in stock-picking and finding out the most valuable stock, you could start regular investing in index funds. You may begin buying to the bottom and benefit from the bounce back after that. It is too risky to pick up individual stocks on hearsay.
If you are also concerned about buying equity assets, try out balanced funds. These are mutual funds that invest part of your money in equity and part of it in debt or fixed income markets.