The equity market is fraught with uncertainty, and many experts are still unable to fathom the present level at which equity indices and stocks trade. Many valuation matrices appear to be exaggerated. Even the finest skilled investors might be caught off-guard by the quick and rapid fluctuation in the stock market. For example, despite the discovery of corona virus in November 2019, equity markets throughout the world continued to rise, only to plummet by about 40 per cent in February and March 2020. This resulted in a significant decrease in the value of investors' portfolios.
Managing risk is one of the most important parts of investing at this time. We have seen that many investors are just focused on the return and neglect the risk that a specific investment entails. This frequently leads to a bad consequence or a disastrous investing experience. In such cases, investors often exit a specific investment or asset class for good. Is this to say that investing in such an asset class was a terrible idea? Absolutely not! The sole mistake was underestimating the inherent risk with that asset. One of the most commonly disregarded risks is the risk of sequence of returns.
Defining Sequence of Returns Risk
One of the most underrated risks in investing is sequence risk, often known as sequence of returns risk. Furthermore, this risk is more visible in retirement. Let us look at an example to better grasp this. Assume you begin with a portfolio of 25 lakhs and withdraw 2.5 lakhs at the end of each year for the next five years. Furthermore, assume you get total returns of 10 per cent in the first year, 12 per cent in the second year, 14 per cent in the third year, 16 per cent in the fourth year and negative 20 per cent in the fifth year. With this, you would have *20.16 lakh at the end of the fifth year.
Denne historien er fra November 07, 2022-utgaven av Dalal Street Investment Journal.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
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Denne historien er fra November 07, 2022-utgaven av Dalal Street Investment Journal.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
How To Invest In An Ageing Bull Market
Bull rallies (periods when stock prices rise) and bear declines (periods when stock prices fall) are natural parts of stock market cycles, but they don't follow a fixed timeline.
Should You Entrust All Your Money To A Single AMC?
If you are a market participant, you have probably heard the quote 'don't put all your eggs in one basket', which suggests diversification. Investors often focus on diversifying across categories like large-cap, mid-cap and small-cap, but they may unintentionally overlook diversification across different AMCs. The question arises: is AMC-wise diversification really necessary? Rakesh Deshmukh takes a closer look at this scenario
Wild Swings Engulf Global Equities
U.S. stock markets experienced significant volatility. An early-week rally pushed the markets to new highs, but this momentum faded, primarily due to weaknesses in the tech sector. The major indices had a mixed finish with, S&P 500 and Nasdaq closed lower, while the Dow recorded a notable gain.
U.S. Elections and China's Economy Hamper Commodities
Commodity markets experienced selling pressure in the last fortnight, driven by uncertainties surrounding the upcoming U.S. presidential elections, concerns about the Chinese economy, and increased agricultural production in Brazil.
Wealth Building For Retirement Through Mutual Funds
Retirement is one of the most crucial and lifechanging phases. It marks a period where maintaining your lifestyle becomes paramount even though your regular income stops.
Mastering Investment with Information Ratio
Information Ratio helps in navigating the complexities of the investment landscape by assessing an active fund manager's performance. And though it has its limitations, it remains an essential part of the finance industry. The article explains what Information Ratio is and how investors can use it as another tool
Plan To Be Financially Independent
Each of us aspires to be financially independent as it ensures having enough resources to be self-sufficient and control our finances.
❝Technology is the new game-changer"
With a new breed of young investors entering the financial markets, it is the use of technology that is increasingly playing a major role in how investments are done and tracked. Anand Radhakrishnan, Managing Director, Sundaram Mutual Fund, shares his opinion about how this factor is turning into a significant tool and how it will shape the strategies of his company
What If Donald Trumps?
The potential election of Donald Trump as president in the U.S. carries significant implications for the Indian equity market. It could lead to changes in the global trade dynamics, in particular affecting the Indian IT sector while also raising inflation levels and leading to yet another revision in the visa programme for Indians who want to work in the US. The article takes a closer look at what may lie in store
Sectoral Gains Make A Mark
Benchmark indices continued their uptrend, reaching new record highs, although the pace has slowed as the broader markets faced selling pressures
