Best Ways to Invest in 2024
In 2024, India will go to Union Elections wherein the incumbent Government will seek a 3rd term for five years. With the elections just a few months away and markets currently trading near all-time highs,investors are wondering what they should do.
Should they commit fresh funds before elections, continue with existing investments, pause investments, redeem now and take a fresh call on investments after elections? These are the questions investors are trying to find answers to. Let us try to find the answer to whether investors should review their investments before every big event, such as elections.
It had quite a few bumps in between, which the Nifty 50 overcame with time. Some of these include the following.
Impact of big events on stock markets
| Year | Event |
|---|---|
| 2023 | Isreal-Hamas war |
| 2022 | Russia-Ukraine war |
| 2021 | Supply chain disruptions and high commodity prices |
| 2020 | Covid pandemic |
| 2019 | IL&FS scam |
| 2018 | US-China trade tensions, PNB scam, introduction of LTCG tax |
| 2017 | Introduction of GST |
| 2016 | Demonetisation |
| 2015 | Greece debt crisis |
In January 2024, the Nifty 50 Index hit an all-time-high level of 22,000. Since its launch in 1996, in the last 28 years, the Nifty 50 Index has multiplied 22 times from a base level of 1,000 to scaling 22,000 in January 2024. However, the journey was not at all smooth.
It had quite a few bumps in between, which the Nifty 50 overcame with time. Some of these include the following.
As seen in the above table, every year, there is some or the other event that can impact the stock market adversely in the short term. However, in the long run, the market takes all these events in its stride and moves ahead.
The Sensex 30, Nifty 50, and all other major indices have also done the same thing. They may have been impacted adversely in the short run. But, in the long run, they have digested all the events, recovered the losses, and made new all-time highs.
Impact of big events on stock markets
In the above section, we discussed the impact of various events happening every year on the stock markets. Now let us talk about elections, the big event coming up in the next few months. Just like other events, elections also impact the stock market in the short term. Let us see how markets have reacted before and after union elections. Impact of elections on stock markets
The above table shows there can be a lot of stock market volatility during elections. However, one year after the election results, markets usually overcome the adverse results, if any. There are two instances of negative returns one year after the election results.
However, the 13% negative return in 2000 can be attributed to the dot com bubble burst, and the 2.8% negative return in 2020 can be attributed to the Covid pandemic. Both events led to a big stock market fall and had nothing to do with election results. In all the above scenarios, the returns have been good after two years of election results.
To conclude, election results can throw up an adverse reaction from stock markets in the short run if the results are not on expected lines. However, with time, the markets accept the election results, digest them, and move ahead to make new all-time highs. Similarly, if the 2024 election results are not on the expected lines, there will be short-term volatility with a downward bias. But, over time, the markets will move on.
Invest with a purpose
You should always do goal-based investing, i.e. invest with a purpose. When you do that, short-term events like elections and others will not bother you as you will focus entirely on achieving your goal. In case of long-term goals that are more than five years away, you can go by the past track record of markets. Short-term events will keep coming as distractions. However, you should always look at the big picture and focus on achieving your goal.
Another distraction you will encounter in the short term is which index, sector, mutual fund scheme, etc., gave the best returns in a calendar / financial year. The point to note here is table toppers will keep changing every year. When you focus on your goals and invest for the long term, you should trust the investment process. Your investment behaviour should hinge upon goal centricity and not returns centricity. As long as you earn good returns in the long run that can fulfil your financial goals, you don't need to invest in schemes that gave the best returns in the last one year.
Building resilience with the 5Ps
Financial goals can be fulfilled with long-term investing and the power of compounding. Hence, while investing, building resilience is essential to stay invested in the long run. You can build resilience by focusing on the 5Ps.
Purpose
All investments should start with a purpose. Without a purpose, it is like setting on a journey without any direction and destination. It is bound to lead to chaos. In the case of investments, your purpose is fulfilling your financial goals. Goals can act as your "north star" and guide everything else.
All investments should start with a purpose. Without a purpose, it is like setting on a journey without any direction and destination. It is bound to lead to chaos. In the case of investments, your purpose is fulfilling your financial goals. Goals can act as your "north star" and guide everything else.
An investment expert can help you identify your financial goals, list them, make goal plans, prioritise them, select and invest in appropriate financial products, and review the progress regularly till the goals are achieved. Staying focused on the goals helps you disengage from the excessive information clutter, ignore the noise, and navigate market volatility.
People
As an investor, you should engage regularly with an investment expert throughout the financial planning journey. Collaboration with an investment expert helps in the co-ownership of goals, joint decision-making, and following a strong conversation-led investment process.
In financial markets, greed and fear are the two biggest emotions that drive investor behaviour. An investment expert can help manage these emotions among investors during market volatility and help them stay put and focus on financial goals.
Personalisation
Every investor has different financial goals and hence needs personalised solutions to match their requirements. During a client discovery session, an investment expert can analyse the investor's cash flows, financial ratios, investing behaviour, and attitude towards risks and rewards.
Based on this information, the expert can assist in hyper-personalised investing, leading to a good experience for the investor.
Product
For example, for long-term financial goals more than five years away, equity mutual funds have the potential to provide better returns than debt mutual funds. Also, when the investment time horizon is even longer beyond.
For example,seven years, it will be better to include mid and small-cap mutual funds along with large-cap funds to get better returns. When investing in mutual funds, the investor should use products like SIP, STP, Step-up SIP, etc., to earn better returns. Also, investing through an ELSS mutual fund will give tax benefits compared to a regular equity mutual fund. So, choosing the appropriate product based on the investor need is important.
Process
Sticking to the investment process is the key to achieving financial goals. A SIP helps you invest regularly every month and develop investment discipline. Also, when your investments are in auto mode, you can manage your greed and fear emotions and stay on course. A step-up SIP helps you increase the monthly investment amount every year as your annual income increases.
The regular review process with the investment expert helps you measure your progress in the goal journey. During the review process, products that are not performing well can be replaced with suitable products. If any new product has been introduced, the investment expert can analyse it and recommend whether it needs to be included in the portfolio.
During regular conversations, the investment expert also helps in setting in setting the right expectations. They can help the investor focus on being goal-centric rather than return-centric.
Elections are Just Another Passing Event
When it comes to investing, focusing on goal achievement is more important than the current events on the horizon. In 2024, union elections are an important upcoming event. The stock markets may get volatile in the short term before and after the elections.
However, its impact will also be short-term. In the long run, the India growth story will play its course and stock market investors will benefit from it. Hence, there is no point in waiting for the elections to pass or for a correction (as markets are near all-time highs).
Remember Peter Lynch's famous quote on market corrections: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves". So, consult an investment expert, get a hyper-personalised goal plan made, start investing, trust the process, and stay focused on the goals till they are achieved.