Looking ahead: What investment lessons can we learn from 2020

Despite throwing the world in disarray, the past year has taught us some valuable lessons. Let me reiterate some of the lessons that we learnt from last year and how that has shaped our thinking about the future.

Stay invested for the long haul

We reaffirmed the old adage of investing: ‘time in the market’ and not ‘timing the market’ is key to generating sustainable growth and keeping your peace of mind. Many who panicked and got out of their equity investments, as well as those who took an opportunity to ride the volatility, have probably ended up with some regret.

The saying of staying invested for the long-run has been the apt strategy for most investors. Amidst all the noise, it was a great opportunity to allocate additional resources to good investments within equity as an asset class.

So looking ahead, remain invested and keep investing. Let your goals determine your asset allocation, and not the ups and downs in the market.

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Assess risk before chasing performance

As Franklin Templeton Investmentswound up six of its fixed-income funds due to these funds facing liquidity issues on account of certain high-risk investments that went sour, we were reminded once again (after the 2018 IL&FS default), of risk factors associated with debt investments.

Looking ahead, as you invest the appropriate portion of your portfolio in debt instruments based on your asset allocation, please remember that the “debt” portfolio is your safe portfolio and Capital Protection is imperative. Do not chase the marginally higher returns; they are not worth the extra risk.

Digitisation is the future

The government’s initiative towards creating a cashless economy came as a saviour during the time of social distancing. People across demographics adopted digital means of transacting and witnessed its potential first-hand. We saw an increase in the adoption of digital platforms across categories – from food delivery to ecommerce to broking and everything in between.

Today, India has the highest rate of consumer fintech adoption at 87 percent among all emerging markets of the world, and the industry is poised to grow at a CAGR of about 22.7 percent between 2020 and 2025.

The power of technology allows digital wealth managers to offer ease, convenience, information, 24X7 availability, and world-class products to their customers, and we expect an even further accelerated adoption of digitisation in this category.

Optimistic about the economy

As the lockdown restrictions are progressively being eased off and the COVID-19 vaccination drive has kicked off, we are already witnessing early signs of a recovery. With a GDP forecast of 9.9 percent, India is expected to be the fastest-growing Asian economy in 2021, as per a study by Nomura Holdings.

Businesses that have survived will thrive

Small and medium businesses that have been able to withstand the crisis and pivot with the changing needs will be rewarded once consumer spending is revived. And the better-run large businesses will gain market share and grow even faster.

The strong will get stronger.

Our long-term outlook for equity markets remains positive, even though we expect 2021 to be a bumpy year with short-term uncertainties. Investors should use the year to strengthen their portfolios against risk with asset allocations aligned to their situation and goals.

Risk and goal-appropriate approach to investments

The past year showed us that the unexpected does happen; however, being prepared for any eventuality can improve your ability to face it. The need for always having a contingency fund has never been more apparent.

In addition, based on the experiences from 2020, we will witness a strong thrust towards better financial planning and systematic investments.

Goal-based asset allocation and investment planning will be increasingly adopted, rather than just a transactional approach driven by “investing for maximising returns”.