What should investors do in a free fall market?

The war has begun. This shows that the human mindset has not changed over centuries. A street fight among humans should not be part of a civilized world. All the preaching has no place when people start fighting like wild animals. When these headlines grab our attention, we go back to our drawing-room to see what is the damage to our small kitty of wealth!

This piece of document is for long-term investors like me, those who have invested in mutual funds, PMS, fundamentally strong equities with a long-term horizon, say, for retirement which is at least 10 years away from now.  A simple suggestion for them is – Keep quiet and don’t quit.

What to do now – The stock market is in free fall! So, stop checking the Demat account. Think that you don’t have a Demat account at all! Relax, read books, comics and waste time (if you have nothing else to do)

What happened in the past? The present war situation is not the only geopolitical catastrophe; in every decade, two or three such major events had taken place in the world. Each time, the stock market across the Globe, shed its fat and our portfolios became pale and thin!

Someone compiled the data of stock prices, their fall, and subsequent recovery, after major world events. The data showed a steep fall of 17% and a handsome recovery after 1 year or 3 years; registering a 2X gain. So, no need to worry, going by the past track records.

Hoping that a similar trend will emerge now and the world economic situation will return to normalcy in the long run and stock markets will start showing growth; eventually profits to the investors. The Returns (income or appreciation) on the investments, when the markets return from the war, are much healthier and better.

The last suggestion – Those who are long-term investors should not sell in panic and suffer losses. Stay invested and if you have more money, invest more during dips.

Traders? – Anyway, they are speculators, they don’t require any suggestions, they are masters of their wealth. For me, trading is an alien.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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