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Investment strategy when the markets are down

July 18, 2008
The transition from a boom to a bust is always the trickiest for an investor. For years Indian stock markets have been booming and most investors and mutual funds have made money. Suddenly in 2008, stock markets have gone bust and panic is in the air. Here are some general tips for investing in these difficult times.

Assess your financial position and goals

This is always useful but especially important in a downturn. When the markets are booming, stocks appear to be a nearly ideal investment. Not only do they offer stellar returns, but they seem to carry little risk either. Nor is liquidity an issue since you can usually sell your investments easily at a profit.

It takes a downturn to see how risky stocks really are. It is possible for even blue-chip stocks to fall by 50 per cent in a matter of months like what is currently happening with real estate stocks.

What this means is that you need to carefully assess your risk appetite and liquidity needs. If you think you will need funds in the next few years for ,say, a home loan or education you need to put aside a reasonable amount of your money in safe instruments like fixed deposits. For longer term goals like retirement you can rely more on stocks.

Text: NS Sawaikar
Illustrations: Uttam Ghosh

Also read: What if the Sensex falls below 10k? Still invest

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