Safety Measures to prepare for a Market Crash

The best crash guard for you to manage stock market volatility is if you have a good Financial Plan in place, and you are sticking to it! If you have a clear financial plan where your goals are clearly defined along with proper asset allocation and risk profiling, then you as an investor will surely be able to handle challenging situations. All we need to do is to stick to the plan, prepared well by a competent financial planner.

Yes, there is no doubt that money invested in equities will see negative returns for some time during such ‘shocking’ events. The markets will correct at a very rapid speed due to panic selling in a few trading sessions giving no time to exit. Investments in shares and equity mutual funds come with daily values and NAVs, and therefore daily ups and downs are very transparent for us to see. We don’t give much thought to price corrections or crashes in real estate since we don’t see a ‘daily NAV’ for real estate. If we did, we would perhaps have panicked even more.

Milestones or Goals

All asset allocations in equity investments in your financial plans should be made with a time horizon of 5 years minimum. Only this will ensure that we are able to tide over whatever requirements we would need over the next 12 months. Past experience has clearly shown that while stock markets react rather badly to ‘shocks’ with very sharp falls, they recover too, and to higher levels, Read More.

Your Financial Goals or milestone led goals could be – a retirement plan, pension during retirement, children’s education, purchase of my house, vehicle upgradation, emergency funds (medical, etc.)

Allocating the Assets

Depending on your goals the asset allocations would vary:

Structure your financial plans as per the milestone you are using as goal, the Risk you can tolerate and the financial capability that you have to work towards those goals.

~ Mimi Partha Sarathy (MD Sinhasi)