Top Investment Mistakes to Avoid During Uncertain Markets

Investors have been facing stock market volatility since the start of Q2 this year. Some of the key drivers are inflationary pressures, global recession, Russia invading Ukraine, the exit of foreign institutional inventors since the start of the year, etc. These and other negative market-related headlines have been causing panic among investors, resulting in some serious portfolio mistakes for many.

Investors, both short-term and long-term, have been trying to get into action mode with market fears and with the hope of avoiding larger losses. While doing absolutely nothing about one’s portfolio may seem counterintuitive, it may be the best course of action in some cases. 

Here, we will talk about some of the top investment mistakes to avoid during such uncertain market phases.

Timing the market

The global and Indian stock market indices have been in a bear phase since the last quarter. Those who are invested for the long term are likely to have only lost the ‘impressive’ gains that resulted during the market run-up at the start of the year. 

Many inventors have been trying to use the ‘timing of market’ strategy in the hope of making short-term gains and also by those looking to exit due to fear of losses. The concept of ‘timing the market’ is like having a crystal ball that actually predicts the future. However, as disappointing as it may sound, the reality is that it is impossible to always successfully predict stock market performance and enter/exit accordingly. Hence, this should not be considered an effective or reliable strategy.

Exiting investments to re-enter during upturns

As the quote from one of the world’s successful investors, Warren Buffett, goes, “Be fearful when others are greedy, and greedy when others are fearful”, fearing downturns is one of the biggest mistakes that investors make. Most investors wait for the markets to look positive before entering. However, this could mean lost opportunities of buying equity when it was available for cheaper rates. 

When markets look rough, one may be tempted to get out with the hope to reenter at upturns. However, it is advisable to cautiously buy the dips in such situations. The same goes for mutual fund investors who exit investments fearing low NAVs during turbulent markets.

Not diversifying enough

Diversification is one of the best investment strategies that investors often tend to ignore. Many investors focus either on the stock markets alone or opt for fixed-income investments but not both. 

With the right level of portfolio diversification, investors can enjoy stability and continued income even during turbulent times. This is best achieved by constructing a portfolio with various asset classes that respond differently to different market conditions. 

Not reviewing portfolio periodically

As investors get anxious about market falls, they tend to make many spur-of-the-moment decisions. This is because they may not have reviewed their portfolio from time to time. 

Performing a portfolio review and analysing existing assets through quantitative and qualitative measures helps in rebalancing the portfolio. Such portfolios can stand the test of time. A smarter strategy is to analyse an investment portfolio’s health and check when to exit or enter a specific investment, mutual fund or ETF. 

With portfolio rebalancing, an investor can stay away from equity markets during downturns while concentrating on other asset classes such as gold, REITs, etc. which may rise in value. 

Discontinuing SIPs

Often, during uncertain market situations, investors discontinue their long-term Systematic Investment Plan due to fear of losses.

However, downturns are mostly short-lived as compared to long-term returns that can be earned from SIPs. In fact, these unpredictable times can be ideal for investing, since investors may be able to buy more mutual fund units when prices drop. By earning extra MF units at a lower price (NAV), investors can fetch long-term gains when the markets bounce back.

SIPs also come with the benefit of rupee cost averaging, which especially works during market volatility. Investors must therefore bear in mind that today’s losses may get offset by future gains. 

Conclusion

No investing process is absolutely smooth, and it is bound to have glitches. To succeed in investment, investors must be ready for a rollercoaster ride and be prepared for volatile market scenarios. The key is to stay focused on the long-term investment horizon while avoiding the above-mentioned mistakes. Investors must aim toward continued portfolio exposure in multiple asset classes such as equity, debt, gold, real estate, etc.

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