Should You Buy The Dip, Or Wait Out Volatility?

(This story originally appeared in on Mar 05, 2022)

Mumbai: Should long-term investors use the extreme volatility in the stock market to place their bets? Or, should they sit this period out. Investment advisers say that since market volatility and bearish sentiments don’t last forever, long-term players, who have surplus funds, should invest part of their money in quality stocks.

Financial planners are also advising their clients not to invest their surplus funds in stocks in one go but spread them across the next few months. Investors could also allocate a small portion to gold and silver — which is expected to outperform the yellow metal this year due to an expected increase in industrial demand from electric vehicle makers.

“If you are looking at wealth-creation, investing for the long term, then rather than getting scared of the headwinds, one should buy some good stocks,” said Raghvendra Nath, MD, Ladderup Wealth Management. Investing in troubled assets is better during troubled times, he said. Bad times won’t last. And once the tide turns, these assets mostly outperform, he said.

Problems arise when investors come to the market with a short-term approach. They hope to make quick bucks and, in times of market volatility, when they witness losses, they prefer to exit. This compounds the market volatility, experts said.

“Volatility does not stay forever. Given the current volatile situation across asset classes, investing in equities should be a preferred option rather than shunning it,” Nath said.

So, what should be the approach to investing now? Financial advisers said that a good route is to put 30-40% of the corpus in equities and the balance 60-70% in liquid funds or bank accounts. This money can be used to buy stocks in 3-6 months, which will average out the total price of buying the stocks.

Risk-averse investors could keep aside some surplus amount for investing in bonds and gold, silver, etc. According to a fixed income fund manager, since bond prices are expected to fall further over the next one year or so, it’s better to invest in short-term bond funds and then as prices fall, they could invest in long-term schemes.

If an investor is looking to invest in precious metals, it’s better to put more money into silver compared to gold, said Navneet Damani, SVP (commodities research), Motilal Oswal Financial Services. Given the geopolitical tensions, higher inflation, rising crude prices and no visibility how these could be contained, precious metals are expected to rally, he said. However, “we expect silver to outperform gold this year”, Damani said.