American polymath and one of the founding fathers of the United States of America, Benjamin Franklin once very rightly said, “Change is the only constant in life. Your ability to adapt to those changes will determine your success in life.” This applies to investments as well. Returns from investments are never constant unless you have invested in fixed deposits. Variance in returns differs from one asset to another, as can be seen from the infographics presented below.
The above image clearly shows how returns from different assets have different volatility levels. Understanding this would help you to make better investment choices. Markets run in cycles and being overweight on different assets or asset classes is important to have a better investment experience at different points of time. This article would give you more insights with respect to the market cycles and how to tide them with the help of different categories of mutual funds.
Market Cycles
The image presented above is an illustration of how a market cycle looks like. It starts with optimism and runs up till the point of euphoria, which is the stage where there is maximum financial risk. Further, when the markets start to move down, anxiety seeps in and a stage is reached when investors deny the market fall. On further fall, the fear factor comes home to roost and investors hit the panic button. That is when the markets move further down towards depression and this is the point where there is maximum opportunity for financial gain. Slowly then, hope for recovery emerges which again leads towards optimism and that is how the cycle continues.
Esta historia es de la edición October 26, 2020 de Dalal Street Investment Journal.
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Esta historia es de la edición October 26, 2020 de Dalal Street Investment Journal.
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