High Border tensions Between India and Pakistan adding to upcoming elections and Weaker global economic markets are the talk of the market these days. You might have already seen PAK stock market indices have crashed heavily and Indian markets are highly volatile from past 1 week owing to these tensions at the border.
How any war or uncertainties impact our economy?
In the past when such situations arise many economical parameters will shake up the entire country.
- Inflation shoots up to the sky
- Debt on Public will increase
- Consumption / Spending by Public will come to stands still- No One Buys anything
- No one will e ready to make any investments
- Taxes will shoot up
- Spending on Military will increase
In a famous book “The Economic Consequences of the Peace” written and published by the British economist John Maynard Keynes
He says “Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens”
If such a situation happens, Value of money will be eroded by inflation by a large and it impacts the entire economy including your safe Fixed deposits and Govt Bonds, Govt schemes etc.
What not to do during such a situation?
Never convert your asset into liquid cash- because the value of money will get reduced due to high inflation
Take control of all your Money and Assets
- Have a review of your Net available assets and cash
- Stock markets will react sharply in such a situation-heavy selling
- Do not panic and sell off
- Never try to take advantage of volatility and Never buy in high volumes
- Continue with your systematic investments as planned if you can afford.- Never stop just because of uncertainty.
- Small cap stocks and Midcap stocks will correct heavily If you are highly exposed to them you may review those.
- Deposits in bonds and Corporate bonds may also get affected, recent IL&FS crisis tells us all, even after being highly rated bonds.
Relatively safer instruments
Although no investment is 100% safe during war conditions, these are considered as safe among others.
- Gold comes to your rescue during such a situation of war and Border Tensions, as the price is pegged with international markets
- Govt Bonds, welfare schemes like PPF, Sukanya sammruddhi accounts etc are relatively safe as it guarantees capital.
- If Equity markets fall, investors can take advantage through systematic investments and rupees cost averaging.
Never try to take advantage of uncertainty
- When there a tension all around us or a full-fledged war, you might get very well performing stocks at a much cheaper price
- However one must not be too much greedy, as you do not know where and when it ends, always concentrate on your long term wealth building through SIPs
- One must concentrate on long term goals like retirement, child education etc. with disciplined investments
- Going aggressive in taking advantage in such situations means high risk, which may seriously affect your portfolio.
- Read Thumb Rules in Investing Equity stocks and Mutual funds
There is nothing much you can do when such sudden events happen! You must be calm and disciplined.
You should never try to convert your assets into cash, whatever may be the asset!