Market crashes come with a lot of imbalances in one’s cardiovascular system. True indeed, it is your hard earned money at stake, worse; it might also involve your entire life savings including your provision for retirement funds.
Most investors panic and take decisions hastily to exit the market before the heat gets to their investments.
But is that the right way forward?
The Sensex graph of 2016 seems to have a faint resemblance to that of 2008; at least this is what the layperson fears. Back then, many investors suffered huge losses. Indeed, it was a sorry state of affairs and the people who lost huge sums of money back then still carry the heavy feeling with them till date.
Even I, as a supposedly wise investor made a certain few mistakes that I deeply regret and swear to not repeat. Here are the lessons I learnt the hard way:
When the going gets tough, stay PUT:
The market crash caught me in a panic mode and, after a dip of 5175 points, the first thing I did was sell off 80% of my holdings in mutual funds – and what a mistake that was! I left the remaining 20% untouched (almost after placing a rock on my heart) just to see how worse it could get; to feel at ease that, yes, at least I saved most of my funds by exiting on time. I had retained 20% of my investments in mutual funds, that amounted to roughly Rs. 66000 (minus a few hundred) which today is worth Rs.3,25,900. This means, had I stayed put, my portfolio value of Rs.5,00,000 would’ve today been Rs.16,29,499 !
The graph depicts what my entire portfolio could have been had I stayed invested in the market till date
Lesson learnt: I shouldn’t have sold because the market was crashing.
Do not invest contingency funds:
I thought I was a good investor until I realized I never had any savings for contingencies – which is why I panicked when the markets crashed. A good practice would be to save about 3-4 months worth of mundane expenses, bills and other fees. The market crash scared me no doubt, but that phase of dismay came with a huge unaccounted expense in the form of additional “school donation”. I couldn’t let my toddler face issues at school just because I didn’t begin saving for his education – another reason to pull out funds.
Lesson learnt: Always have contingency funds in hand, do not invest those funds and certainly do not touch those funds unless the situation qualifies as an emergency expense.
If you have the money – invest
Given the situation back then, it was obvious that I didn’t have the funds to pump into the market and gain from the bruising economic conditions. However, in retrospect, I wish I had the money to invest. This time around, the market conditions are shaky once again and I go by experience – I have started rebalancing my portfolio and investing further, to be prepared for the worst.
Sensex Performance of Oct 2006-2009 vs. Feb 2014-2016
Lesson learnt: Instead of running out of the equity market, pump in more funds (leaving your emergency funds untouched).
These are the things I have learnt as an investor. I am certainly not going to repeat the mistakes I made back then, should there be a déjà vu for real!
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