From Director’s Desk | Anirudh Dar
How often have you sat in your car and driven some place without knowing where you’re headed or without charting a proper navigation route? And if you have, how did the experience turn out eventually?
The investment process is also a journey – one between you and your financial goals. If the agenda is not set, a path is not laid out and iterations are not made in this lifecycle, there are bound to be roadblocks and speed breakers. This is the greatest divide between the investor and the returns they make on their investments.
Imagine you have a child who is 7 years old today. The reality also is that no matter what happens in this world, this child cannot go to college in less than 10 years from today. So, hypothetically, if an investment was made for that child’s education last year and the markets saw a 40% dip in March of this year; what would you do to those investments? From my professional experience, I can tell you that many investors would push the panic button and redeem their money or criticize the advisor or do both. But if you were to pause and reflect on the conversation your advisor and you may have had while making those investments, you would be reminded of the primary goal at hand which was always 10 years away and minor aberrations such as the one in March 2020 would become irrelevant if you continued to hold onto the investments into the future.
What should an investor do in such a scenario as depicted above? The only sensible thing to do is to revisit your asset-allocation, which basically means, in this case, change your asset class from equity to debt. Debt investments are more passive and do not collapse like equities can at times and generally have a better capital protection mechanism in them. Changing the goalpost of your investment horizon because of an anomaly in the markets will only do more harm than good.
For a lot of investors, any sort of capital erosion is unacceptable but at the same time, they all aspire for double digit returns in the high teens. Yes it is possible to achieve those returns, but they will only come when you tactically alter your individual investment strategies in line with the markets and not by changing the goal itself.