Elections 2024: How to position your portfolio ahead of significant events
Published by Mint
Abhishek Kumar's role: Wrote this article
Abhishek Kumar, founder of SahajMoney, wrote this column arguing that investors should not act on election forecasts but focus on reducing risk and keeping enough liquidity for goals due in the next few years.
What Abhishek Kumar said
Should I reposition my portfolio before election results or another big event?
I would resist the urge. Big events trigger a fight-or-flight response, and competing political narratives leave market participants assigning probabilities to outcomes nobody can know in advance. Acting on that anxiety in equities can lead to moves that are hard to reverse. Instead of trying to predict the result, I suggest returning to two things within your control: reducing the risk in the portfolio and making sure enough liquidity is on hand for commitments that are coming up.
How can I lower the risk in my portfolio when the outlook is uncertain?
Three tools exist, each with limits. Diversification across companies, sectors, countries and asset classes deals with the risks specific to any one of them, but market-wide risk remains and has to be lived with. Defensive assets such as debt, cash or gold have tended to be steadier in turmoil, yet a ship kept in harbour misses the voyage: a rally after you turn defensive is a real cost. Hedging with derivatives has its own costs and suits only the nimble. So I would use these measures in moderation rather than expect them to remove risk.
What should I do about money I will need in the next few years?
This is the part I would act on, event or no event. Investing means postponing consumption so money can grow, but only if it is available when the commitment falls due. I suggest listing the goals that arrive in the next few years, estimating what they need, and moving that amount from volatile holdings like equity into less volatile ones like debt. Once that is done there is little point in watching daily moves; the money that must be there has already been protected.
Will the election outcome itself damage my investments?
I would not lose sleep over it. Politicians make expansive promises to win votes, but they also know that harming the economy works against their own interest and their chances of being re-elected, so once in office they tend to avoid actions that would do that. Public opinion about who will win, and loud forecasts on social media, are noise rather than information. A sensible asset allocation and adequate liquidity matter far more to an investor than guessing political outcomes.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
A Mint column by Abhishek Kumar, published ahead of the 4 June 2024 general election results, on why major events make investors anxious and eager to act. It discusses reducing risk through diversification, defensive assets and hedging, along with their costs and limits, and keeping liquidity by moving money for near-term goals from equity to debt whatever the event.
Publisher source
Elections 2024: How to position your portfolio ahead of significant events
