Sell or buy? Your response to these three questions will help you to decide

By Rushabh Desai

The whole world is worried about the current situation in the markets triggered by the Covid-19 pandemic. Obviously, many of you are worried as well about your investments. Let me start by stating that you should never panic and take hasty buy or sell decisions in the current situation. Take a moment and breathe deeply. Next, take a look at your investment portfolio. Ask yourself these three questions:

1. Is my goal getting affected in these chaos?
and/or
2. Am I nearing my goal at this moment?
3. Are my emergency buckets enough to help me and/or my family to survive for at least 6 – 12 months?
If the answers to the first two queries are `no’ and the last one is `yes,’ you should not worry about anything. Just be calm and relaxed and let the bleak situation pass.

If the answers to the three queries are a big `YES,’ then you should try to alter your plan and push the goal a bit further to avoid any setback. Clearly, there is some trouble with your asset allocation plan. However, do not panic and try to rebalance it without a proper plan. Remember, you would make huge losses.

If the answers to the three questions are a big `NO,’ some rebalancing needs to be done to create an emergency corpus even at the cost of some investment losses if any.

If you are answering `yes’ to the first two queries and in the negative to the third question, you may have to sell your investments at a loss. You should try to create an emergency corpus at the cost of your goals and despite the losses.
It is very important for investors to understand the risks and the time frame needed for each of the broad asset classes like equities, debt, fixed deposits, bonds, cash and gold. Before investing, make sure your advisor explains in depth the risks associated with each asset class as one can only control the risk and not the returns. Always invest as per your capacity and never over board.

Equity investors
Do not sell or rebalance your portfolio even if you are in bad schemes. Redeeming at this point will turn your notional loss into an actual one. If one has surplus lumpsum investable monies, this is a very good opportunity to stagger your investments for 2 – 3 months to capture all the dips as one does not know the very bottom.
For investors who are fully deployed, please hang in there as this too shall pass. Humans have survived many calamities in the past with today’s modern and advanced science we will surely prevail. SIP investors should not stop their SIPs and should continue buying these lucrative price levels. Investing in equities is a serious business. One should always invest according to their risk-taking ability.

Debt investors
Investing in overnight, liquid, (ultra-short, low and short duration funds) is the wise thing to do. Investors should keep in mind to invest only in high quality instruments. One should not ignore RBI bonds, PPF and bank FDs as they are very important for diversification in the debt category. Credit risk funds are a big no even if the yields are lucrative, don’t try to be adventurous in this category.

Lastly one should keep ample of liquidity through debt and some portion in gold for support. The main purpose of investing in equities should be to beat future inflation, debt for capital preservation and gold for support.

Please see below charts to understand Goal, Risk, Asset Allocation & Time Horizon.





(Rushabh Desai is an independent financial advisor, based out of Mumbai)