“I want to prevent capital erosion in case of a market crash. What
can I do proactively?”
And this is from Mr. Shankar who has seen his portfolio value fly up the
charts over the last 5 years. I had to tell him what I keep telling everyone.
“The best crash guard for you to manage stock market volatility is if you
have a good Financial Plan in place, and, most important , — you are
sticking to it!”
If you have a clear financial plan where your goals are clearly defined
along with proper asset allocation and risk profiling, then you as an
investor will surely be able to handle challenging situations. All we need
to do is to stick to the plan, prepared well by a competent financial
planner.
“But with Covid 3 rd wave coming in, I am hearing that there will be
extended lockdowns. Don’t you see that there will drops in revenues and
profits?”I reflected to myself… “Yes, there is no doubt that money invested in
equities will see negative returns for some time. The markets may correct
at a very rapid speed due to panic selling in a few trading sessions giving
no time to exit. But should I exit?”
Investments in shares and equity mutual funds come with daily stock
market value and net asset values, and therefore daily ups and downs are
easy to see. “We don’t give much thought to price corrections or
crashes in real estate since we don’t see a ‘daily NAV’ for real estate. If we
did, we would perhaps have panicked even more.” I laughed at him.

How to set your milestones or goals
“All asset allocations in equity investments in your financial plans should
be made with a time horizon of 5 years minimum. Keep liquid assets for
the next 12 months. Only this will ensure that we are able to tide over
whatever requirements we would need without panicking.” Past
experience has clearly shown that while stock markets react rather badly
to ‘shocks’ with very sharp falls, they recover too, and to higher levels.
Know more
Your Financial Goals or milestone led goals could be — a retirement plan,
pension during retirement, children’s education, purchase of my house,
vehicle upgradation, emergency funds (medical, etc.)

Allocating the Assets

Depending on your goals the asset allocations would vary:

The different asset classes are equity, debt, real estate, gold, bonds, debentures, etc. The decisions on what asset allocation to go for is taken basis the financial goals:

• Liquid (FDs, Mutual funds, shares, etc) versus illiquid assets (real estate)
• Equity (shares, equity mutual funds, etc) versus Debt investments (FDs, debt mutual funds, etc)
• Locked in Investments (PPF, PF, Bonds, Structured Products, AIFs) versus Open-Ended Investments (Mutual funds, Shares)

Structure your financial plans as per the milestone you are using as goal, the Risk you can tolerate and the financial capability that you have to work towards those goals.

~ Mimi Partha Sarathy (MD Sinhasi)

The best way to get the confidence that you are in the right place to counter the market’s vagaries is to work closely with a dedicated financial advisor to get a financial plan in place . Read more

Sinhasi can help you with this structuring of financial goals and help put out an asset allocation portfolio for you in line with it. Reach out to us at Mimi@sinhasi.com to understand how we can help you maximise your investment goals or leave a comment below on your thoughts.