Investing in 2020: Dos & Don’ts
If you have been considering investing in the year 2020, but haven’t yet made your investment in the stock market, 2020 is the perfect time to start your wealth creation journey.
Before we go into the dos and don’ts of investing, let’s first understand why one should invest in the year 2020.
1. The government is resilient about reaching a $5 trillion milestone by 2024-25.
2. The headwinds are behind us, as we witness a pick-up in the earnings and consumption demand.
3. We have everything required to cook the perfect recipe of growth – privatization, disinvestment plans by the government, demographic dividend who’re willing to spend, digitalization, revolutionary reforms, urbanization and many more.
With the challenging times of 2018 and 2019 behind us, the year 2020 may turn out to be a year where an investor will start witnessing growth revival, which shall reflect in the performance of the stock markets as well.
Yes, the market conditions have a few transient challenges such as the continued impact or spread of coronavirus globally, business slowdown in MSME and constraints in the availability of capital at reasonable rates. However, considering the long-term growth prospects, it is conducive for an investor who is willing to remain patient even when the tide changes. So, if you have funds to invest in the stock market, trying to enter at a perfect time can turn out to be a loser’s game.
Here’s how the research experts recommend investing in 2020.
#1. Understand the risk you are willing to take
Understanding the risk appetite is not only about embracing the conservative or aggressive investment style. It is to know how much money you’re able to let go if the markets faced a downturn tomorrow and still have a sound sleep.
#2. Don’t invest anywhere to capitalize on the bull run
Just because you want to ride on the impending bull run, it doesn’t mean you invest in any company that you come across via WhatsApp, business channels or rumours. We have seen a vast difference in the performance of stock price between a sound company and not-so-sound company in the past. Considering this, investors need to adopt a more meticulous and rigorous approach while selecting the stocks. Research & Ranking recommends focusing primarily on the fundamental characteristics and micro attributes of stock while identifying profitable opportunities.
After the twists and turns in 2019, investors are getting more cautious over the qualitative aspects of a company such as corporate governance, the credibility of the management, risk management processes, management vision, etc. The rule to success is simple – Avoid companies that don’t pass the stringent fundamental test. If you want to make money, adopt a bottom-up approach to stay away from fundamentally weak companies.
Once you identify high-quality companies, decide an optimal allocation for each stock. That is, build a well-diversified portfolio to mitigate the risks and maximize the returns.
#3. Adopt a disciplinary approach
It is always preferred to make regular contributions to your goals, such as putting aside Rs. 5,000 each month for your retirement. This strategy, called rupee-cost averaging, is suitable for long-term investors as it keeps your emotions out of the equation.
Also, if you’re continually investing every month irrespective of the bulls or bears in the stock market, it helps you avoid timing the market, which is a futile attempt to make money in the stock market.
Patience is not the ability to wait, but the ability to keep a good attitude while waiting.Joyce Meyer – American Author
Having talked about the 3 dos for investing in 2020, here are a few bloopers an investor can commit while investing in the current year.
· Timing the market: Don’t try to time the market, instead, believe in time in the market. Look at the investment from a long-term perspective of 3-5 years. If you look at Nifty, it has delivered 14-15% CAGR returns between 1st April 2009 and 31st March 2019. And this is irrespective of all the hiccups in the stock market. Invest systematically with your financial goal in mind.
· Looking at only the past performance: Do not look at the performance of any stock in isolation. Consider the fundamentals, growth prospects, cash flows, management pedigree before making an investment decision.
· Going with the media news: We’re flooded with news each day via WhatsApp, emails, business channels, newspapers, social media platforms, etc. How would you separate the wheat from the chaff? Before you hit a buy or sell button, conduct your analysis and make an informed decision based on the data, and not on emotions or rumors.
With markets hitting new-highs, it may be a herculean task to find value picks. Few sectors such as insurance, healthcare, IT, construction and consumer discretionary will make a big comeback in 2020. Also, an investor needs to keep his eye open for private banks that have stood the test of time. Given the economy’s stability and growth momentum, Research & Ranking expects a revival in the auto sector as well.
However, whichever sector you invest in, the basics remain the same – Make sure your portfolio is optimally diversified and well-researched as well as comprises stocks that you understand and are sturdy enough to help you meet your goals.
Happy wealth creation!
About the Author:
This article has been contributed by ResearchAndRanking.com which is a leading Equity Research Firm in India