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What to do when nothing goes right


According to Murphy’s Law, anything that can go wrong will go wrong.

If you look back at how 2020 has played out, the applicability of Murphy’s Law will become abundantly clear to you. Everything that could have gone wrong, has. From controlling the spread of the virus to the never-ending lockdown, from the emotional, financial and investment implications of such a world-changing event to immeasurable loss of human life, 2020 has proved to be one train-wreck after the other. In fact, 2020 gave us no insurance that life would ever get better.

In normal situations, when we face problems of such magnitude, descending into panic is a very common reaction. After all, who on this earth could have predicted a calamity like COVID-19?

The problem with this sort of a reaction though is the fact that panicking is rarely conducive to a constructive solution.

We must be better prepared to deal with extreme situations, and we should not make any rash decisions while a pandemic is descending upon us.

When the COVID spread first started in the opening months of 2020, the world was not prepared for a disaster of this magnitude. People started panicking, and economies and capital markets around the world started reflecting those sentiments. The investment situation and the status of the Indian stock market are prime examples of this.

Between January and March 2020, the BSE Sensex fell by 39.35% and the NSE Nifty fell by 34.6%.

This was a result of a chain reaction. As the Indian stock market started falling on account of the panicky speculations regarding COVID-19, people began to sell their shares and exit from their asset portfolios to protect their money.

The stock prices are generally determined by the free interaction of the market forces of demand and supply. When the supply of shares increases and demand falls, it is an indication that people are not willing to invest their money in shares.

A vicious cycle thus begins. The more the selling pressure, the faster the price drop. The faster the price drop, the more the selling pressure. This continues till the share prices plummet to unbelievable levels.

What should you do then?

How can you prepare for a situation when nothing goes right?

There are a few pre-emptive measures that you can take to make sure you are financially and otherwise protected for extreme situations and unforeseen circumstances.

Here, we have compiled for you 3 things that you should always be aware of.

1. Insurance

When you are at the top of the world, everyone will flock to you like moths to a flame. When your fortune takes a tumble, your insurance is all that remains. Always remember to protect your future as well as your loved ones.

This is one of the most important things to keep in mind while planning for the future and creating your asset portfolio.

It is extremely important to have an inclusive insurance policy which gradually grows your wealth over time. It should offer you all the benefits that you desire and should fit into your life like a second skin.

Another important point to note is that your insurance plan should help inculcate in you the habit of saving regularly. After all, setting a savings target is very easy, sticking to it diligently is almost twice as hard.

Regular small premium payments which are designed for maximum ease and comfort are the ideal method.

The ICICI Pru Assured Savings Insurance Plan offers a guaranteed maturity amount once the policy matures. It gives your life cover too.  In your absence, your family will receive a large amount of money, depending on the duration of the plan and the number of premiums paid.

This means, even if the worst should happen, you will not have to worry about the future.

This insurance plan offers you the option of choosing what premium amount you want to pay and how often you want to pay it. As a cherry on the cake, you also get tax benefits on the amount you pay.

Unforeseen circumstances, of course, are of myriad types. You might be thinking about the liquidity issues with an insurance policy, especially in times of crisis.

Well, with the ICICI Pru Assured Savings Insurance Plan, you can even take loans against the policy. This means, in your time of need, this insurance policy will act as a redeemable asset in your portfolio.

Quite ideal, isn’t it?

2. Acquiring quality stocks at a cheap valuation

This is the premise on which the concept of value investing is based.

When the Indian stock market crashed earlier this year, the market valuations of most companies, big and small, were affected.

Long-term investing is all about acquiring fundamentally strong companies for your asset portfolio when their price is low. This rarely happens when the market is upright, and only in a manic selling frenzy do we see their prices drop.

Follow in the footsteps of Warren Buffett and invest heavily when the stock market is down.

Towards the end of 2019, Warren Buffett’s accumulated cash pile had grown to about $128 billion. He had been saving the cash while on the hunt for good investment opportunities for his asset portfolio. As the stock market crashed, he invested heavily in quality stocks which were trading at a discount.

Most of the time, people are not able to follow their investment strategies. This is because when the market crashes, we rarely have liquid cash on our hands. It takes patience and fortitude to keep from investing the money.

3. Diversified portfolio

This is fairly common advice. Having a diversified portfolio is the cornerstone of being a smart investor. However, there are many layers to this principle, and most of the time, investors take it at face value.

What does diversification mean?

Diversification means to spread out your investment portfolio across different sectors, different instruments, and different asset classes. The rationale behind this idea is based on a simple premise. The circumstances that affect different asset classes is different. If your asset portfolio is properly diversified, then your investments should not be affected even if the market conditions change.

Most investors use this principle half-heartedly. Many a time, we come across asset portfolios where the majority of the investment is in the stock market. However, because the investment is spread out across companies in different sectors, investors are sure of the fact that the portfolio is properly diversified.

This is not the case.

Proper portfolio diversification occurs when you have different asset classes in your portfolio, not just different equity stocks. Ideally, there should be a mix of equity, mutual funds, bonds, gold and insurance.

What is the reasoning behind this?

In March 2020, the BSE Sensex fell by over 30%. This would have a disastrous impact on equity investments, and maybe even mutual funds. If your entire portfolio was concentrated on the stock market, you would have taken a huge loss.

But, if your asset portfolio contained an equal mix of equity and debt, you would have been protected. This is because, for instruments like bonds and gold, their value generally increases when the stock market is volatile.

Between January and August 2020, the price of gold increased by over 40%. This is because instruments like gold and government bonds act as safe havens when the market is volatile.

The ideal diversified asset portfolio is one where market risk is minimised.

Thus, we come to the end of the article. We hope you enjoyed reading it and that you can take some lessons away from your own portfolio. Do keep in mind that only we if are prepared for the worst can we deal with whatever life throws at us. Build your portfolio accordingly and don’t skimp on the insurance!

Happy investing!


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