Every investor has his own set of unique investment objectives. What he wants in life, i.e. his requirements and needs have a direct impact on his pattern of investment and its objectives.

Before getting into the seven major factors, try to answer the below question.

Table of Contents

• Does the corona crisis deviate you from your investment objective?
• Determining your requirements
• Risk Tolerance
• Income Level
• Tax Liability
• Total Wealth
• Investment Time Horizon
• Liquidity Payment
• Other Considerations

Does the corona crisis deviate you from your investment objective?

If you feel deviated from your financial goals, you can follow these simple steps to be right back on track to meet your financial goals.

1. Create a coronavirus financial contingency plan

A contingency plan will keep you prepared for crises and to mitigate the risk. It prevents panic and promotes action.

“Intellectuals solve problems, geniuses prevent them”. – Albert Einstein

Don’t wait for a disaster to happen, be proactive, plan for the worst, and be prepared.

This is the list of things to do:

• Prepare for emergencies
• List your mediclaim policies,
• Ensure family and COVID 19 coverage,
• Create an information vault.

When you plan, you’re prepared to deal with the unexpected. When you’ve done everything to handle a bad situation, you can approach problems with a calm attitude. It creates flexibility, quicker action, and peace of mind.

To know more read: coronavirus financial contingency plan.

2. What should you do with your investments?

Due to the panic, you would have planned to

a) Withdraw to avoid further losses and
b) To time the market bottom.

“Panic is not an effective long-term organizing strategy”. – Starhawk

Hence avoid panic. Also avoid, timing the market bottom as it is difficult to know when to buy at the lowest price and when to sell at the highest price. You may sell your investments only to see the markets recover soon after. Holding your investments during downturns has been an effective strategy. Do you want to make any significant changes to your financial plan in a moment of panic? No? Then it’s better to stay invested.

“Patience is bitter, but its fruit is sweet.” Aristotle

If in an unavoidable financial need, you can use your debt investments, emergency funds, and as the last option, you can use the EMI moratorium facility.

For more info read: How to take advantage of the coronavirus crash.

3. Steps to recover faster and better from the Stock market crash.

a) By a portfolio revamp

Test your funds’ performance. If you have any poor-performing funds, it is better to move them to better performing funds before the stock market recovers. This is also called as portfolio optimization. Experiments on portfolio revamping worked. To know if you should redeem and reinvest now, read: How to revamp for faster and better results.

b) By a portfolio rebalance

After the stock market crash, your asset allocation would have changed. Then you are supposed to bring it back to the original asset allocation. This is portfolio rebalance. This enforces a level of discipline and also balances risk and reward. It allows you to buy assets at a cheaper rate and sell them at a higher rate.

“The most important thing you can have is a good strategic asset allocation mix. So, what the investor needs to do is have a balanced, structured portfolio – a portfolio that does well in different environments…. we don’t know that we’re going to win. We have to have diversified bets”. -Ray Dalio

For more, read: How portfolio rebalance is done.

c) Choosing on SIP

You can either stop, continue, or increase SIP.

There is a Dutch proverb that says: “He that has a choice has trouble”.

So to not fall into trouble, we tried finding the best choice on SIP. Two experiments with three investor categories were conducted, each of them chose an option. One to stop, another to continue and another to increase SIP (all during the market fall). In both the experiments, the one who chose to increase his SIP during the market fall earned the highest portfolio value.

a. The one who stops his SIP incurs a loss.
b. The one who continues his SIP gains better.
c. The one who increases his SIP gains the highest.

Hence increasing SIP will help you recover faster and better.

For more, read: How to play smart with your SIP.

Have you heard of this proverb? “Time waits for no one”.

Yes as the saying, if you want your portfolio to recover faster, do these before the market recovers. This is the time to do it, as the time once lost is always lost. Adhering to the above steps will help you reduce your risks and also help you recover when the market recovers.

Let us understand the influencing factors behind our investment objectives.

Also, watch the video here!

1. Determining your requirements

Follow the path that helps you achieve your short-term and long-term goals. These can include funding the education for your children, or investing in your business for expansion, retirement or travel plans, etc. You can directly address your requirements by identifying these goals with your investment.

2. Risk Tolerance

3. Income Level

Your absolute income level as well as your return requirements, can largely effect your decisions relating to investment. Our income can also influence our risk preferences. Investors with higher income may be more inclined towards riskier strategies, as they can conveniently contribute to added investment capital at the time they face any losses.

4. Tax Liability

Your tax or any special tax circumstances are a few considerations that will help you determine ways to seek the maximum utilization from your tax-benefiting investment schemes.

5. Total Wealth

Our investment objectives should also consider the assets outside our portfolio. The value of a person’s expected pension, or his other retirement benefits may influence the return objectives and risk tolerance of his investment portfolio.

Moreover, our wealth levels can also impact the way we live (our lifestyle). A desired standard of living determines our risk tolerance factor, and should be considered with your investment objectives.

6. Investment Time Horizon

This may require us to ask questions such as:

• When do you plan to draw the assets in your portfolio?
• Do you prefer to choose short or long term maturity assets?
• Do you have enough time for recovering from a descending market?
• How important is capital preservation, for meeting an urgent financial need?

7. Liquidity Payment

This is about the ease with which you can transform your assets into cash, at or near to the latest fair market value.

This may require us to ask questions such as: do we need an investment portfolio to liquidate easily, or can we wait some more?

Liquid assets examples include cash at hand, cash at bank, fixed deposits and liquid funds

Other Considerations:

You must acknowledge your overall financial assets, expected income sources and obligations that affect your portfolio under management. Questions that come up here include the following:

• Does your job have an adequate retirement plan, or will you have to fund the same from your investment portfolio?
• Is a stock-purchase plan from your employer,an important part of your personal wealth or is it a diversification issue that arises when making other portfolio choices?
• If you get tax-deferred or tax-qualified assets from your employment, what impacts does these have on your investment decisions?

Once your investment provides you the answers to all these questions, you will have surely succeeded in achieving all its objectives. Here, you may even seek help from your financial advisor, whose advice can be essentially valuable towards clarification as well as accomplishment of your investment objectives. However while doing this, you must ensure that he is not selling any investment product, therefore has no personal interest that can cause a conflict or bias in his investment advice.

Please share your views on these 7 major factors that determine your investment objectives. Were they useful to you?

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