Retail investors can achieve significant gains in 2021 amid the potential recovery of economies and financial markets from COVID-19 crisis.
- Surging cases of new coronavirus strain infection and renewed lockdowns in Europe may induce stock market volatility in 2021.
- Specific tips and strategies can help retail investors breeze through unprecedented market events during the year.
Investors' reboot mode is activated as the world sails through the new year, leaving behind one of the most tremulous years of the decade. While it would be too early to predict what 2021 would taste like, it is expected to unfurl a slew of opportunities for retail investors. The revival of global economies, vaccination drive and thematic trends will be interesting to evaluate from an investment standpoint.
However, concerns remain over rising cases of new COVID-19 strain infection and extension of coronavirus lockdowns in European countries. The current scenario calls for some smart and decisive moves on the part of retail investors to ride out potential market volatility in 2021.
Against this backdrop, here is a dozen checklist that can help retail investors cut the mustard this year:
Plan Well Ahead
The unprecedented onset of pandemic typically impacted the income base of people as well as businesses. Those without a backup strategy were the ones that were most severely affected by the sudden change of events.
With an entire 2021 lying ahead, it seems to be a perfect time for investors to set up their investing goals well in advance. Investors can re-consider their investment objectives, along with the risk appetite and available finances to reach a strategic asset allocation for the new year.
Do Not Put All Your Eggs in One Basket
While the calendar year has changed, COVID-19 is still a big battle to fight. Owing to market and economic uncertainty, investors can adopt a well-researched diversification strategy to mitigate the risk of heavy losses in their stock portfolio.
Diversification can be undertaken within the same asset class like equities by putting funds across different sectors, or among different asset classes like gold and equities to limit risk.
Plan Funds Allocation Judiciously
While smart investing has its advantages, devoting entire capital towards it can leave you in jeopardy. Effective distribution of funds between savings and investments can be good practice for investors to avert potential losses. No doubt, savings worked wonders for individuals when COVID-19 pandemic brought the world to a standstill in 2020.
As a retail investor, one can identify and segregate their primary and supplementary expense needs and accordingly make investments.
Do Not Forget to Check the Associated Commissions and Charges
Additional expenses associated with different investment avenues should also be taken into consideration to get a broader picture of overall costs or net gains. Investors can keep a check on brokerage charges, trader's fees, or commissions, which usually vary with the type of investment vehicle.
Ponder on Stop-Loss Order
It is necessary for investors to ascertain the maximum loss one can bear. And placing a stop-loss order can be an ideal strategy to avoid excessive losses. It can help an investor buy or sell a particular security or stock when it reaches a specific price.
However, one cannot neglect that stop-loss orders also limit prospective profits by effectively terminating the deal too soon.
Stay Informed of Key Updates
COVID-19 has set forth many unexpected events, impacting the stability of businesses. Given the scenario, investors need to stay abreast with the latest business, economic and sectoral developments that can aid them in making an informed decision.
Do Not Fall for Herd Mentality
The year 2020 was all about jumping on the bandwagons. The paranoia and volatility made it almost impossible for several investors to hold their ground when the stock market crashed down. As a result, some investors that indulged in panic selling failed to reap the benefits of jaw-dropping recovery that followed the market dip.
Therefore, it seems imperative for retail investors to walk on their own, escaping herd mentality. Before making any investment decision, investors can consider reviewing the company's fundamentals, its ongoing progress, prevailing sector-related scenario, and growth prospects.
Consider the Overall Company Performance
Sometimes, the price of a stock does not clearly reflect the actual value of the company. Thus, it is crucial for investors to keep a tab on the company’s overall performance and future potential, along with the recent share price movement.
Beware of Psychological Biases
The new year is not just about learning from past mistakes but to also avoid them if a similar situation arises. When an unforeseen event occurs, investors often fall prey to behavioural mistakes, acting out of fear and greed.
It is important for investors to discern their own psychological biases and avoid becoming victim to such tendencies. This could help them eliminate faulty judgements and analyse investments more objectively.
Embrace Value Investing for Long-Term Gains
Identification of stocks trading below their intrinsic value can support investors attain lucrative gains over the long run. This strategy requires a prudent analysis of the company’s fundamentals and recent developments via valuation methods to yield promising returns.
Undertake a Periodic Review
Investors can evaluate the performance of their portfolio through periodic review, which reflects gains or losses made during a specific period. However, it is equally important for investors to avoid basing their investment decisions in haste with each movement of the stock market.
Keep Learning About Investing
Learning is the key to growth, which can gradually make a weighty contribution to enhancing wealth. Investors can certainly eliminate dependencies by understanding different investment philosophies and technical skills that can aid in an effective evaluation of stocks.
While these investment tips can help retail investors wade through stock market volatility in 2021, one needs to understand that investment is not a get-rich-fast scheme. Investment demands diligent research and analysis for the identification of assets that can deliver decent returns over time with less risk.