The stock market fluctuations can sometimes be a nightmare for the investor even with Systematic Investment Plan (SIP). SIP is earning only 6.13% in the past 10 years from the Sensex. Anybody who has started SIP in these last 10 years has earned very little. These poor returns from the stock market are a big concern for some investors who had considered that they would earn higher returns from their equity investments and SIP. Not just the returns but also the value of the investments has been greatly affected by the fluctuations in the market.
- Expectations of moderate returns
Stock market has been giving moderate returns upon the investments since the time has known. The investor should not presume that the stock market will always perform the same and provide the same average returns. With the gradual maturity of the economy, the average return any investor would get from the stocks also comes down. The historical data provides enough support for this.
In the coming years, with changing and challenging market environment, the average returns may come down. This can be a base for keeping lower returns as expectation. With lower returns, the investors will have to increase the amount they save to extend the period of their financial goal.
- Prioritising the goals
When the stock markets go down, the investors go with the flow and wait for the stock market to recover, but not all financial goals can wait for the recovery. Instead, the investor should prioritise the goals and give more consideration towards the critical goals. With prioritising the goals, the financial planning becomes easy and then the investor can allocate investments accordingly.
- Risk reduction for critical goals
After listing the goals and providing the allocation of investments can be done depending upon the importance and time available to the investor. Keeping in mind the, importance and criticality of the goal, proper investment product must be chosen carefully. Not just the investment product but also the division of investment must be done carefully. This not only reduces the risk related to the investment but also makes sure the returns are enough for meeting the financial goal.
- A backup plan
It is very difficult to accurately give some value to the goals. There are chances that these goals may alter with a change in time and sudden change in the environment can result in the endangering of the goal. A common ‘wealth accumulation’ goal must be used as the backup plan for the critical goals. Most of the times, the money accumulated for the non-critical goals can be used to fund the backup plan for the critical goals. The number of non-critical goals defines the risk allocated to the critical goal. If the number is not very big then the investor must be very conservative regarding the allocation of investment for critical goals.
- Rebalancing the critical goals
Monitoring the progress of the investments is as important as setting the goals and investing in them. Periodic evaluation is very important for knowing the current status of the investment. These reviews can guide the investor if he can alter the investment proportions according to the performance. Here, the importance of goal also plays an important role. If the asset allocated is dynamic then it can reduce the risk and the need for re-balancing.
- Reduction of risk with approaching of goals
Equity investments are risky in stock market. To manage this risk, the investor should start reducing the proportion of equity within their portfolio before reaching the goal period. Here also the importance of the goal and its time period should be taken into consideration and then the reduction of risk should be done. This allows the flexibility for approaching the goal with greater liquidity.