Investing Dos and Dont's ahead of election results

Investors need to sit tight even though the political drama or the global economy can push the market up and down in the short term

Updated: Apr 18, 2019 06:12:53 PM UTC

Rishabh Parakh is a personal finance expert, a Chartered Accountant by Profession and founder of NRP Capitals (erstwhile Money Plant Consultancy), an established firm based out of Maharashtra with operations expanded to Singapore & the UK. He is also an author of the Book titled "Financial Spirituality".

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The usual uncertain markets will remain volatile during the general elections. This will impact the investor, who will be gripped with the fear attached to the election results, leading to irrational decisions. Additionally, the uncertainty surrounding the global market compound the worries. It is often seen that investors worry too much about the smaller things, and miss the bigger picture. Here are some common problems investors face, and the ways in which they can follow a better strategy for this period:

Common investor behaviour 

They sell in panic: Investing is influenced more by behaviour than anything else. In spite of knowing that one should invest more when the chips are down, investors still succumb to their emotions and take irrational decisions. They sell their stocks or mutual funds’ investments on seeing negative returns. Ideally, investors should sell largely when there is a major change in their financial goals, or change in the schemes or stocks they have invested in, or in case of a financial emergency.

They try to time the market: Someone famously said that when it comes to stock market investing, only two people know which stocks will go up or down: One is God and the second is a liar. Imagining that one can always buy stocks low and sell at the peak is a myth. In fact, your focus should be on investing in quality stocks. Remember that the key is not the time at which you invest, but the time you remain invested.

The impact of Indian elections

The market is agnostic when it comes to the winning party; however, investors worry about uncertainty, which will remain until the results are announced. The market will stabilise post elections and the GDP is expected to keep growing at about 6 percent, no matter which government comes to power. Good governance could boost this further. India is likely to remain among the fastest growing countries, and the election can be looked at as a temporary economic event that should not hamper its progress.

What should an investor do?

Don’t compare fixed deposits to stock market investments: When the market does not perform as it did in the past year, people end up doubting their decision to enter the stock market, and often think it better to remain in fixed deposits. But the two cannot be compared.

Always take any market correction as an opportunity to create a portfolio of your lifetime. All you need to do is to stick to basics and not become influenced by what others are doing--what works for them may not work for you. Do not invest based on hearsay.

Focus on creating a realistic financial plan that works under all market movements: As an investor, focus on comprehensive financial planning, risk profiling and come out with a proper asset allocation that can help you decide the amount you can invest in direct stock market. If you are someone who doesn’t have time, expertise and good amount of money to invest, then don’t invest in stock markets directly. Instead, choose the mutual funds route and invest systematically.

To sum up, sit tight even though the political drama or the global economy can push the market up and down in the short term, because the stocks have the tendency to rise against these events in the long term. You will not go wrong if you focus on the right financial planning and stick to a well-diversified portfolio.

The author is a Chartered Accountant by profession and founder and Chief Gardener of Money Plant Consultancy.

The thoughts and opinions shared here are of the author.

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