If one has to draw parallels between demonetisation drives, one can look back to 1978 where this tool was leveraged to annul high denomination notes that were hardly in popular use. However, the latest demonetisation drive has a far different agenda. It’s to replace/withdraw Rs. 500 and Rs. 1,000 currency denominations—widely and popularly in use—to uproot black money.
Facing a cash crunch because of demonetisation? You should think about getting a Credit Card!
Additional Reading: What Demonetisation Taught Us About Money Management
As expected, demonetisation resulted in bank interest rates spiralling downwards as aggressive deposits from people helped increase liquidity with the banks. Though this spells a lot of good news for loan borrowers, it has definitely dealt a severe blow to investors who are a fan of fixed and secured investment option – Fixed Deposits. Besides this, real estate and gold—two vital assets—are the facing the consequences of black money being purged out of the system. The demonetisation driven devaluation in real asset prices is again, not a great comfort to those who have parked their money in property. But if you are looking to buy a house, then there have never been better days for Home Loan borrowers.
The present state of the country’s economic and financial state does not appear to be in the ‘pink of health’ though this is set to improve in the near future. The current situation is reminiscent of the 2008 economic depression when banks went kaput and investors had to make radical changes to their portfolio to minimise the risk of loss to their wealth.
The actions or measures investors took in the year 2008 can be of help today as the after effects of demonetisation roll by. Here they are:
Have A Plan
The best way forward when making investments is to have a game plan. Hence, having an Investment Policy Statement (IPS) would be a good move. It‘ll work as a framework for the actions and decisions you seek to take. It is important that your IPS clearly states your investment objective and your expectations. This will allow you to be prepared for all contingencies and navigate unforeseen challenges.
Be Flexible, Take Some Risks
Investment is a long journey. Hence, it’s important to stay agile to make changes to the investment portfolio as and when needed. If you want to give your investments a power boost then you must be willing to take some calculated risks. More risk = More returns. However, if you make aggressive investments based on your hormones rather than information then be prepared for some very deep losses.
Balance Is Key
Making investments is not a one-time game. Make sure you analyse your investments at regular intervals. Study the returns on each investment in detail and see if your portfolio is giving you expected returns. Perhaps a certain investment can perform better with a little boost of money. Also lookout for investments that aren’t giving expected returns and bid them goodbye.
Additional Reading: Rebalance Your Portfolio For Best Returns
Look Back, Jack
One way to assess the performance of your investments is by revisiting the past. Check your financial year data up until seven years ago and compare it with the performance of equity markets for the same time period. You’ll know whether your portfolio is in need of a shake-up or not.
Your portfolio should be built up by using two basic entities- cash flow and asset allocation. Be judicious with your investment. For instance, long-term gains cannot be achieved by investing in short-term income options. By doing so, you are depriving your investments of enough liquidity that are essential when it comes to reaping rich returns.
Remember, never look upon unforeseen and unpredictable economic events unfavourably. Instead, make this work to your advantage. Organising your investment framework is the key to sustainable investment planning as it will help you realise when to make amends when required.
With these above strategies and a calm mind, you’ll be able to make the most of any kind of economic change. Often, wise decisions made during rough times give the best results. Start now by making smart investments. How about exploring Mutual Funds?
Additional Reading: 10 Benefits Of Investing In Mutual Funds