'If you only have small cap mutual funds in your portfolio, you will face the brunt'

Vivekh Pathak, Founder, Finance and You, a Gurgaon based financial planning firm.

Questions asked by his clients:
1. How long will the volatility stay in the market?
2. When will we see higher returns
3. Will the government policies for revival work?
4. Which market segment should we stick to?

What he is telling his clients:
I have been telling my clients that volatility is here to stay. If that is making you nervous, you shouldn’t be in the equity market. Volatility will always be a part and parcel of equity investing. The market will never go up in a straight line for a long period. Moreover, I send my clients a quarterly report that tells them how their portfolio has performed, which schemes have done well, etc.

I keep asking them why they are constantly worried about what is happening in the market. I point out that their portfolio is not in red. If they have earned 30% returns in 2017, now they are losing 13%. They shouldn’t lose their sleep because of that. The biggest problem I believe is that these people are equating market returns with their portfolio returns. I make them understand that even when the market is going down, not all schemes are in negative or losing money.

The concept of asset allocation is that when one of the schemes or asset class performs badly, the other schemes give the portfolio a cushion. So, for investors who have a proper asset allocation in place, there is nothing to worry about.

For direct investors who call or interact with me on different forums, I tell that if you have only small cap schemes in the portfolio, you will face the brunt. Diversification is very important.

Thinking about what the government is doing is fine, but overthinking is bad. I tell my clients that it is not in your control. Government policies don’t work in one week; most of them are for the long term. All you can do is either stop or continue investing. Continuing your investments in such markets will average out your purchases from the high markets of 2016-17. Focus on asset allocation and don’t stop your SIPs.