2020 was a roller-coaster ride for a lot of people. But businesses, this year was unlike any they had experienced before. With the demand and supply of products taking twists and turns, and lockdowns extending for weeks and months – doing business in 2020 surely was a difficult task. And so were investments.
However, first times are always difficult. As 2020 approaches an end, it is time to leave behind what has happened, and to walk towards something new. Here are five ways in which you can give a fresh start to your finances in a rebooting market.
Rethinking your risk tolerance
2020 left a lot of people wondering if their portfolio was exposed to too much risk – so much so, that some people even divested and panic-sold to explore alternative investment vehicles like precious metals and real estate. However, not all could be blamed on risk-exposure. After all, the pandemic delivered a sweeping blow to all the sectors. However, diversification was also a part of the problem – and the other half of your risk management strategy.
Moving forward, new investments and revised portfolios must reflect a re-defined sense of risk. Imagine the types of risks that a rebooting market might be subject to and how your own financial stability has evolved or devolved over the course of the pandemic. Has your risk-tolerance reduced during the past year? Can you afford to put 80% of your savings into commodities trading, or should you seek less risky alternatives, like hybrid mutual funds? Spend some time reflecting about your risk tolerance, moving forward.
Another lesson in confidence
When the news about the pandemic started reaching investors, panic selling began right after – lower circuits were triggered across securities, and resentment started creeping in amongst long-term investors, who had carefully packed a large chunk of their savings into high-growth funds. However, what must be noted here is not until how far the markets crashed, but the aftermath of the pandemic.
Did the crash persist? It didn’t. Moreover, the recovery was strong too, and some were publicly questioning in forums, asking experts to explain the rising markets amidst COVID. Some sectors like FMCG and tech showed record growth, and tech-aligned mutual funds even showed 62+% annual return rate. Time to learn a lesson in confidence, once again – stock markets might crash in the short run, but these downfalls balance out with periods of immense growth. Take this lesson, and remember it when you are tempted to divest in the coming year.
Rebooting markets – look for the keyword
When you read rebooting markets, what do you see? Rebooting is clearly the keyword here. After the lockdowns, companies were focusing on restarting their businesses – this is not the reboot that’s being talked about in the news. In fact, the reboot will be continuous – where lasting impacts of the pandemic will bring lasting change to markets. When investing in 2021, this should be a critical factor in evaluating long-term prospects.
Think about it with some examples. In the manufacturing industry, companies which are not investing in automation and new enterprise technologies to improve their operations are at a serious competitive disadvantage after the pandemic. Perhaps it would be a better idea to divest from there, and invest in a company that has better long term growth prospects. Technology is one sector which is going to be the biggest beneficiary of significant investments being made by businesses into new technologies in a post pandemic era.
The dynamics of the rebooting markets will be different – pay attention to the new trends before committing to any long term investments next year.
The importance of sector rotation
Look at the performance of various sectors in 2020. Not all the gainers performed well concurrently. 2021 has added a number of new variables to consider before making your forecasts around a sector’s performance. In 2020, the demand for essentials surged after the lockdown, and fluctuated between normal and elevated levels thereafter. Demand for energy and utilities went down, while tech stocks outperformed all other sectors. The theme to be noticed here is sector rotation.
Sector rotation is a continuous phenomenon, but your portfolio needs some tweaks every now and then. When major news reaches investors, there can be a severe short and medium term impact on the prices – and consequently to your portfolio. Make regular reviewing of your portfolio a habit going forward, so that you do not miss out on the best opportunities in the market.
Connecting the dots – the rebooted customer
How has your lifestyle changed over the last year? How have your spending and future plans changed? It is possible that others are also thinking and changing things in their lives along the same lines. 2020 has brought forward new habits and altered category spending across all income slabs. This will reflect in the overall outlook towards the markets, and in real-time performance of companies.
Think about your next year’s portfolio strategy in creative ways, and don’t let the learnings from the past year go unnoticed.
New starts are always difficult. They say that to start fresh, you must leave behind what has transpired, and step towards something new. In 2021’s rebooting market, don’t let the best opportunities slip right by you.
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