Woke up on Friday morning, hearing the news that Dubai World, a government owned investment company of Dubai has asked for rescheduling of $ 59 billion debt,(repayment due on 14th Dec’09). This particular news sent the world financial market in a downward tizzy. (The right noises made by the Governments reduced the fall) .What has happened in Dubai has definitely affected the investment horizon. A probable sovereign default, which was last witnessed in Latin America (Argentina in mid 90’s), was the last thing expected out of Dubai .
Q & A
• How does it affect our investments?
• Should we sell off the investments in equity?
• Should we move all the investments to debt ?
• How will Gold – as an asset class react to this crisis?
The above questions are but natural. The Sensex which is meeting resistance at 17,000 levels, can touch lower levels. How low or how high ???. The market is the best judge.
What are the steps we need to take during this time of volatility?
• Based on the risk profile, have an asset allocation (Equity; Debt; Cash; Gold) in place, if one has not considered the same.
• Every fall is a good opportunity to buy. Staggered buys in value stocks are recommended.
• Debt instruments (besides Bank Deposits, including Income Funds and Hybrid Debt Instruments of Mutual Funds ) has always to be actively considered.
• Gold in the short run could face the heat. No fresh investments in gold are recommended at this juncture. In the same vein, Gold as an asset class can never be ignored.
Recommendation
• Re-visit your current investments
• Look at the Time Horizon for investments. If its tied with a financial goal, do not panic. We’re in it for the long term.
• Cash is king… However, use every fall to invest in equity in a staggered manner.
• Have a re-look at the debt portfolio. Income funds / Hybrid Debt instruments of Mutual Funds are recommended.
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