Year 2017 has been generous to investors, and probably would be remembered as one of the most investor-friendly year going forward. With most investors walking away with handsome returns, creating wealth was nothing but an effortless victory in the stock market.
But come 2018, there has been a turnaround in the market sentiments and economic outlook. Since the dawn of 2018, the Indian stock market has been on the hem on account of a myriad of factors. Starting with the fuss over LTCG, the markets confronted other hostile trials such as banking scams, US Fed rate hike, global trade war, soaring bond yields and rising political mercury over the upcoming elections. Obviously, it’s a no-brainer task for anyone to conclude that 2018 would not be an easy ride for Indian investors.
This poses an investing trilemma for any Indian investor:
Will FY2018-2019 be a year of wealth creation or is another speed-bumper in an offing?
What should be the right modus operandi while building a portfolio in 2018?
And, with the unfolding of scams, how can we safeguard ourselves from getting into another Nirav Modi fallout?
Starting with the way ahead for the market this year, one can definitely not discount the impact of global and local challenges on the Indian stock market. However, we think equity market is more of a function of fundamentals of an economy such as corporate earnings and GDP growth. With the favourable fundamentals and as positive implications of GST and demonetization have started to play out, we can expect an amiable year as far as wealth creation is concerned. But, as they say, good things are not so easy and take time to come. 2018 will test the resilience and discipline of Indian investors.
So how you can achieve the optimal solution for portfolio allocation?
- D-I-Y Method: Identify the right stocks, monitor them, book profits at the right time and remove the underperformers at the right time. This demands check-out for management reputation and balance-sheet. If you have the skills and time, go ahead.
- Hire an expert: The second option is to hire a partner who can be the captain of your financial cruise and save you from the storms. A good advisor will not promise you the sky. He will help you develop realistic expectations about the risks and rewards of each investment option. Most importantly, he will help you avoid the common pitfalls that are the cause of big losses for investors who enter markets on their own:
- The temptation to believe that you can time the market successfully every time.
- The fear-driven urge to sell at a loss when stock prices are falling.
- The greed-driven desire to buy when stock prices are going up without any change in fundamentals.
Given the two options, which one would you choose? No prizes for identifying the best, safe, time-effective and convenient way of creating wealth in the year 2018.