- Date : 03/10/2020
- Read: 3 mins
Investors are being cautious with their financial planning, yet they are optimistic about stock market investments.
The COVID-19 pandemic is the ‘Black Swan’ event of 2020. After being months into the pandemic, the dramatic economic effects and stock market volatility continue to persist. And amid all the fear and uncertainty, people have started to become financially cautious. With the threat of pay cuts and job losses looming large, families are reining in their expenses.
Servicing a rental property is becoming difficult, especially in larger cities, and those who were living away from family are looking at moving back to cut costs. Plans to pursue higher education or committing to large expenses such as buying a house or car are being deferred till the situation improves.
Creating a new source of income
To counter the impact, people are using the extra time they have to either upskill or to develop a part-time or passive income stream. While many are trying their hand at affiliate marketing via social media channels, others are looking to leverage on the volatility in the stock market to earn money.
Increased interest in stock trading
As of July 2020, the BSE Sensex had a gain or loss movement of at least 1% almost every second day. This is the highest volatility seen in the markets over the last decade, and there are a few more months to go. This opportunity has attracted long-term investors and day traders alike. Many dormant trading accounts have been reactivated and a staggering 1.2 million new trading accounts were opened during March–April 2020 alone.
While long-term investors are taking the systematic investment route for both equities and mutual funds to average out the purchase cost (rupee cost averaging) of their key financial planning investments, short-term investors and day traders are riding the volatility looking for arbitrage gains.
Avoiding small-cap and penny stocks
One of the positive investment trends that experts have noticed is that all category of investors are staying away from small-cap and penny stocks. Movement on these stocks are usually relayed on tips based on ulterior motives and can erode investor wealth. The focus has instead been on large-cap stocks across sectors that are available at relatively affordable valuations and offer higher dividend yields.
Inclining more towards shining metal - gold
Another asset that’s been shining of late is gold. Gold has a contrary relationship with traditional investment options such as equity and debt. As interest rates and currency valuations dip, investors are deploying their investible funds towards gold, which delivered close to 100% returns during the previous (2008–2011) global financial crisis.
Related: Here's how you can hold gold in demat form just like equity shares or mutual fund units [Premium]
Experts suggest that the markets will continue to remain cyclical in the foreseeable future, and investment trends will keep changing in the short term. Read some of the Dos and Don’ts of personal finance during the economic slowdown.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.