The year 2021 has been even harsh for those who couldn’t recover from the shocks of 2020 due to job loss or salary cuts. Those who could stay at home and enjoy a steady stream of income should consider themselves lucky. There are many families who had to dig in their safety stock with whatever little savings they had considering the savings trend in Pakistan. While saving for uncertain times is always advisable, it is investing that will help in the long run. The first and the foremost thing is that how much cash is available at hand. One must avoid investing if he/she is cash deficient. During the pandemic, low economic activity, more time to research and availability of alternative investments are one of the few reasons that will induce potential investors.
The rate of inflation remained high for a major part of 2020, aggravating the miseries of people. The key policy rates were kept low by the State Bank of Pakistan to give priority to economic development rather than controlling inflation. As a result, people investing in fixed-return instruments still continue to lose purchasing power of the capital invested with the interest rates considerably lagging the rate of inflation, generating a negative real rate of return for such investors.
Basic mind set of any type of Investor is to manage the risk and maximize the returns. The common phenomenon in managing the risk is diversification or, in other words, not putting all the eggs in one basket. The diversification requires choosing which baskets to put your eggs in; and most importantly how much? While looking to take a position during uncertain times like these, keeping the core investment strategies in mind is important. Market volatility is unavoidable during a crisis, and since we are in the midst of the biggest crisis of the century, so, it would be wise to use it to one’s advantage and make it an ideal opportunity to know the risk appetite. Here are a few core strategies to keep in mind before investing:
Buy and hold: The aim as an investor should be to find high-quality assets and hold onto them for as long as possible. Sometimes the simplest way to approach investing is trying to do nothing. As an investor, one should aim to buy and hold the asset regardless of how the market performs.
Avoid panic and pessimism: Those who panicked in March 2020 and thought that the pandemic was the end of the world locked in big losses but those who sustained steadily and incrementally came out of it successfully.
Stay informed: Investing is not rocket science, but it isn’t a joke either. One cannot just buy an asset randomly and expect it to give good returns. The investment may perform well once or twice, but if one does not understand how it works, then there is a chance of high risk. So, the key to good investing is that one should always do his/her own research.
Contribute gradually: By investing a certain fixed sum of money into the assets of your choice for the long term, it is likely that its value is going to appreciate in the long run.
Explore alternative investments: Alternative assets generally provide a hedge against economic crises since their performance is non-correlated to the traditional markets. Recently, cryptocurrencies have risen to be the most popular alternative asset class among investors.
Now is the best time to invest: The best time to start investing is always now. Those who wait, the boat for them has already sailed. Just bringing one’s money in the market is the first step to seeing positive returns.
Sharp drops are better than slow declines: Investors are better tuned to absorb the financial pain if it is short lived. For most investors, suffering a big blow is better than slow bleeding.
Time vs timing: The pandemic situation has taught us that timing in the market is less important than time in the market. Given enough time, whatever little is invested today may add to the wealth and financial growth of the investor.
Technology: Since technology is driving the future, it is wise for investors to get themselves abreast with all the developments, both in terms of applications and the stocks they wish to invest in.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]