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Wealth management during pandemic like COVID19, stick to asset reallocation: Kuvera.in

Asset Management, Bangalore, COVID-19, Debt, Equity Markets, Equity Mutual Funds, India, Karnataka, Kuvera.in, Portfolio Management, YES Bank

March 15, 2020

  • Asset Management
  • Bangalore
  • COVID-19
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By Gaurav Rastogi, Founder, and CEO, Kuvera.in

Governments globally have woken up to the seriousness of the problem that COVID19 (Coronavirus) poses and have put in place adequate emergency responses. On our part, we should follow the best practices and ensure to contain the spread.  The first lesson for all of us is not to be tone-deaf. While crashing markets in bad times are an excellent opportunity to buy, as a community, we must collectively wish and actively work towards making things better. So, stay healthy, sit tight, and spread awareness where you can. The second is to only rely on authentic sources like WHO or CDC. It is not the time to forward everything you receive on social media without verifying authenticity. “Forwarded as received” does not absolve you from your duty as a concerned global citizen.

Investments during the time of global crisis 

These are extraordinary times, and while markets have retraced 20% or more many times before, the speed with which this retracement has happened is a first. It took S&P 500 a mere 16 sessions to drawdown 20% and entered the bear market territory. Global markets are spooked, and so are the Indian equity market. The co-incidence of YES Bank fiasco, in India, playing out at the same time doesn’t make things more comfortable as it impacts investor confidence. However, as we have seen many times before, human and economic resilience is immense, and sooner or later markets do bounce back to reflect the constant march of progress.

Surprisingly for an individual investor, what works in peacetime also works in times of distress such as COVID19. I started working and investing during the dot-com bubble and was trading CDS during the great financial crisis.

Do’s & Dont’s for retail investors

Below are five lessons I have learned to keep one’s personal investing simple. Simplicity matters, because just as in dieting, it is better to follow a diet you can follow for decades than one that requires extraordinary effort for immediate but fleeting benefits.

  1. Stick to your asset allocation and rebalance if it gets off by 5%. We will send reminders when that happens. In a crash, you will sell your debt and add equity. It may appear counter-intuitive, but it is not. You are buying more equity as it falls.
  2. Track your wealth and not just your portfolio. At a wealth level, last month’s ~20% decline in Equity Mutual Funds is still only a 5% decline in average wealth as gold has rallied.
  3. Postpone all decisions by two days. Say you are itching to buy or sell or stop a SIP or increase your SIP. Write the resolution down and revisit it in two days. You will make better decisions.
  4. Check your wealth once a week. Yes, that’s right. The more you check, the more you will think you need to do something. Inaction is not our strength.
  5. If you have itchy hands, buy Rs 100 in any index fund. Always buy, always make it a trivial amount. It satisfies your urge to take action without making any difference to your long-term outcomes.

Stay away from false narratives

While putting a timeline on the severity of the drawdown or that of the recovery is near impossible, following these best practices will help protect your wealth and survive such market crashes. In hindsight, this week will be another example of not making investment decisions in the heat of the moment. If you got whipsawed by the price movement, then consider it a learning lesson. As an investor, don’t punt on daily price moves. Don’t fall into the false narratives of fading a big move or catching a rally early – especially if it is coming from an expert. The winning strategy is to keep it simple and stay invested.

 

(Disclaimer: The views and opinions expressed in this article on Coronavirus (COVID19) are those of the author and do not necessarily reflect the views of  IBS Intelligence. Kuvera.in is a wealth-management company regulated by the Indian financial regulator SEBI)

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