Prudent financial steps investors should take during a slowdown

Ashish Shanker of Motilal Oswal, Santosh Joseph of Germinate Wealth, Varun Girilal, of Mitraz Investment Advisors and Saurav Basu, of Tata Capital

India’s gross domestic product (GDP) continued its downward spiral and reached 4.5% in the second (July-September) quarter of financial year 2019-2020. Besides, salary increments and bonuses remained subdued in the last few years and are not expected to improve in the near future, according to various reports. Given the reducing GDP growth rate and the current slowdown in the economy, many people are concerned about their investments and are not sure how to ride out this phase. Ashwini Kumar Sharma asked experts how an average household can stay ahead even when times are tough.

Ashish Shanker, Head, investment advisory, Motilal Oswal Private Wealth Management

Review your portfolio, look for investment opportunities

The tenets of long-term investing based on time horizon, asset allocation, and financial goal orientation should not change during times of slowdown. It is important to avoid impulsive calls, such as stopping investments completely or trying to de-risk the portfolio by exiting from equities due to short-term underperformance.

During a downturn, it is prudent to periodically review the health of your portfolio and, wherever possible, look for investment opportunities to meet long-term wealth creation goals. Create a monthly budget and regularly monitor your purchases to avoid overspending on unnecessary items.

It would be useful to invest some amount (six to 12 months of expenses) in ultra short-term or arbitrage funds. Also, be cautious about borrowing. If you already have EMIs running, avoid taking additional loans that can affect your budget.

If you have already set aside the requisite savings, and at the same time have minimal debts, you will be able to maintain the lifestyle you are used to.

Santosh Joseph, Founder and managing partner, Germinate Wealth Solutions

Avoid large loans and over-the-top expenses

The first step is to avoid extremities, followed by sticking to an asset allocation and finally reviewing your portfolio periodically based on the risk-reward situation. Usually, in a slowdown, people tend to curtail expenses and during a financial boom, they tend to overspend. Striking a balance is the way to go.

It’s best to avoid any excessive leverage or loans, over-the-top or unwanted expenditure or expensive holidays. Avoid the desire to constantly upgrade to a new smartphone or gadget.

A slowdown is possibly the best time to invest in good long-term assets.

In times of a boom, everyone is trying to buy; this creates a high demand, leading to higher purchase prices. During a slowdown, when people cut back on investments or purchases, you find that the same assets are affordable and available at relatively better prices.

Slowdowns are generally followed by a boom, and vice-versa. It’s a cycle and the best way to ride it is to be disciplined in your savings, be prudent about your expenditure and keep your goals in mind.

Varun Girilal, Co-founder and executive director, Mitraz Investment Advisors

Ensure ample liquidity, have a contingency fund in place

That cash and liquidity is king is a point that gets driven home during slowdowns. Ample liquidity ensures that you have peace of mind to fund your basic expenses. If you have surplus liquidity, it enables you to pick up high-quality assets at distress prices.

Have at least six to nine months of expenses as back-up in instruments such as fixed deposits and liquid mutual funds. Discretionary spends should be curtailed.

Such a period works as a blessing in the long run if one uses it constructively as it is the best time to streamline financial priorities. It is also a good time to review certain investments such as traditional insurance policies which may not be giving worthwhile returns, and liquidate them. Maintaining your payments to life and health insurance as well as continuing your SIP investments is important.

In terms of jobs, it is advisable to avoid taking unwanted risks. The key is to stay light, liquid and solvent so that you are ready to make the most when the sentiment and environment turns around.

Saurav Basu, Head, wealth management, Tata Capital

Stay invested but keep an eye on your asset allocation

Diversification of investments will play an important role in such a period. Investors should refrain from putting all their eggs in one basket. Do not let your emotions and market volatilities come in the way of your financial goals.

Continue to invest. The key is to be disciplined in your approach towards your investments. Monitor your portfolio and realign it wherever required. It is crucial to stay invested as the power of compounding will play out for you eventually.

Equity investors should do comprehensive research on their stocks and choose one that will give long-term appreciation. Debt investors, given the recent events, should do a thorough check on the ratings and the reputation of the company which is issuing the debt.

If you are taking a long-term loan such as a housing loan, do your due diligence on the project or property you are investing in. Align your EMIs with your cash flow or earnings and ensure you build a contingency fund. Most importantly, save more than what you spend.


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