Will Market Crash? Should I move all my money to Debt and be safe?
By: Mimi Partha Sarathy
Tags: Risk Management, Financial Planning, Finance

Here, one can assume that you already have equity investments which may go negative if the market crashes and therefore you intend to move it into debt or FDs.

Here are the scenarios in which you do not have to panic and move out money from equity to Debt or FDs;

Equity market returns will never be linear. They will come lumpy — sometimes within a 1 or 2-year period, but most important this will happen only over a 5–7 year period. And this is the law of equity market returns that they will be lumpy which we must accept as equity investors.

Herd mentality: Panic spreads fast, especially when seeing erratic investment behavior patterns. It has been spoken about many times, it happens all the time and during market cycles of ups and downs, either euphoria or despondency strikes the herd. We get carried away with the actions of others and follow them, which sometimes leads to huge losses. Many investors exit their equity investments during market crashes, and actually book huge losses. Investors also rush into equity investments on tips which everyone and their uncles are talking about. We have seen a surge in equity investors over the past 12 months like never before seen.Running away, panicking or exiting from equity when others panic are all bad ideas. Similarly, rushing into an equity investment just because the herd is entering, is equally not good.

With the help of your advisor, you must strike a good dynamic balance with prudent action for us to be able to tide over such times.

It seems nice and tempting to invest all our funds into equity when the markets are giving crazy returns. However, we must stick to our financial plan, asset allocation, risk profile, fund requirement especially short term , contingency planning , etc more so at such times.

As Warren Buffet says — “The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

And it is NOT about timing the market, but the amount of QUALITY TIME IN the market which rewards equity investing. Once again Dynamic Balance is the prudent action to take at all times.

On market shocks and corrections — “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”~ Warren Buffet

Our takeout is very simple.

Get a financial plan made using the help of a financial advisor. Check out here on how financial planning is done. Read More

2. Do your asset allocation basis your lifestage, risk profile and goals. Check out

3.Ensure that your short-term requirement for the next 3–5 years is planned separate of this. And relook your insurance because it needs to complement this. Know more

Have you had a conversation with a financial advisor to get these three things sorted? We have said time and again that markets can correct sharply and this can be caused by any macro indicator. And in these uncertain times, you can be rest assured that Murphy’s law will apply. Anything that can go wrong will go wrong.

Reach out to us if you want to have conversations around what we feel could be ideally suited to your financial goals. We are certified financial planners and pride ourselves on getting alpha returns to our clients and peace of mind on their deployment of financial plans.