Monday, January 25, 2010

"w" shaped recovery - how to save yourself

I read an article on rediff today that talked about dot-com bubble in past and how current rally in stock market can actually be a sign of another bubble formation.

This is not the first time that I read about this. In past also, I read several articles that talked about why current recovery in world's economy can be temporary recovery. It is merely caused because of several stimulus packages launched by various country's govt. This is going to be a "W" shaped recovery and so on and on.

Reserve Bank of India for now might be denying any such bubble formation, but last decade proved that no one can actually predict bubble formation and bubble burst time. Timing the market to take advantage of such bubbles is most dangerous to one's financial health. But does that mean that one should stop investing altogether?

I think the right thing to do will be "set realistic goals". By realistic goals I mean don't expect that each time you invest in equity market, your money should double in 1 year. Look at long term returns of the market that comes out to be somewhat 10-15%. Expect only these returns and stay invested for longer time.

Also, do balanced asset allocation. Remember the famous quote "don't put all eggs in one basket". Save something in secure assets, have some exposure to gold, some exposure to real estate and some in equity. That is what will keep you financially healthy and not any speculation!

Have appropriate insurance so that in case something wrong happens, you and your closed ones can survive.

And last but not the least, review your plan, goals, progress periodically and do necessary changes.

1 comment:

  1. When their compass has no North, don't be surprised if they're heading South ... How GDP Betrays The Economy