Volatility if used to one’s advantage can help to create wealth.
We prefer ‘sure-shot’ solutions. We hate uncertainty. Our money matters are no different. These are common views on investing. Besides the problem of low savings; many young individuals procrastinate to invest in volatile investment options such as stocks primarily due to volatile nature of returns on offer.
However, rarely do they understand that volatility is here to stay and if used to their advantage, volatility can help them to create wealth. “When grocery prices fall you can buy more. The same principle applies in the financial markets. Volatility gives you the opportunity to buy more shares or more units of a mutual fund,” says N Arunagiri, MD and CIO of Chennai based TrustLine India, a portfolio management services provider.
Making friends with volatility
“You cannot beat inflation and save for your long term goals using fixed deposits. Some allocation should be done to stocks,” says Suresh Sadagopan, founder of Mumbai based Ladder7 financial advisors. Stock markets are volatile in nature in short term, but in long term the markets are slaves of corporate profitability, he points out. In the long term there is a fair chance of making money if you own good companies or invest in well-managed equity funds. The best way to do this is to go for equity mutual fund through systematic investment plans (SIP). “Many young investors have realised the importance of SIP and compounding of money. But they want to see the results in a year or two,” says Rohit shah, founder of Mumbai-ased financial planning firm GettingYouRich. Opt for long term SIP and you will see volatility rewarding you in a big way, he adds.
This can best be seen in volatile markets. HDFC Prudence Fund, the largest scheme with sizable exposure to stocks has given 16.82% returns if you have opted for a monthly SIP from January 1, 2008 till April 1, 2017. However, if you have invested lumpsum money in the same scheme at the beginning of the period, you would have settled with 12.2% rate of return provided you stayed the course despite the sell-off seen in the year 2008 due to global crisis.
“If you hold on to your investments and add more to them in volatile times, you stand a chance of taking home more money when markets recover,” Arunagiri adds.
Volatility can become a stepping stone to your long term journey of wealth creation.