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The markets are getting more and more volatile given the geopolitical tensions. So, if you have heard advice that asks you to “play it safe” and you are wondering if that means you should sell your equity mutual funds and stop your Systematic Investment Plans (SIPs) then you should read this article before you make any mutual fund investment decisions.

What does playing it safe mean?

Playing it safe does not mean that you should sell your equity funds or stop your SIPs. Equity mutual fund investments are long-term investments. The long investment horizon allows your equity funds to absorb the short-term market fluctuations and help you meet your wealth creation goals. The nature of the stock market is inherently volatile. If you were to sell your equity funds and stop your SIPs every time the market got volatile, you would not be able to meet your financial goals.

In times of uncertainty, it’s natural for investor sentiment to get cautious and anxious. But you should not lose sight of your goals and overall investment strategy. Just because people around you are panicking and selling off their equity funds, you should not do the same. While playing it safe is good advice, what it really means is to not take unnecessary risks when the markets are volatile.

Instead, you should reassess your investment portfolio and see if your investments are aligned with your goals and risk appetite. For instance, if your asset allocation is 100% equity investments, then rebalancing your portfolio may be a smart move. No matter how high your risk appetite is, there should always be some debt allocation in your portfolio to hedge stock market risk. The proportion of debt and equity would depend on your income, age, number of dependents, financial obligations, goals, personality, etc. There are several types of mutual funds including debt funds which you can consider.

The bottom line 

The markets will go through ups and downs – that is inevitable. You should not rush to sell your mutual fund investments every time there is a market downturn. Instead, when the markets are volatile, you should not make any new moves or experiment. That will only bring undue risk to your investment portfolio. Instead, you should reassess your investments to make sure that you are not taking more risk than you can afford and that your investments are aligned with your overall investment strategy.

Hence, irrespective of the market conditions it’s crucial for you to have clarity on your financial goals, risk tolerance, and asset allocation strategy so that all your investment decisions are well-thought-out and strategic. If you need help figuring this out and laying a foundation for your investment plan, you can reach out to a financial expert who can help you with the same. Getting investment advice from a professional is always better than getting advice from people around you who don’t know any better.

 

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Paul Petersen

The author Paul Petersen