Worried about post-election market volatility? Reduce risk with these simple steps

Last Updated on

As we head to the third phase (out of 7) of Lok Sabha Elections 2019, it should be reasonably clear that it would be a lot tighter race than in 2014. No “single coalition”(!) could get an absolute majority of their own and smaller parties can decide who comes to power. If you are worried about post-election market volatility, you can easily reduce portfolio risk with these simple steps.

Before we begin, do not forget to watch my corporate presentation: Common sense approach to money management!

The short-term stock market volatility index, India Vix is on its way and could reach close to pre-counting levels in 2014. If there is a clear majority, Vix could “crash” (that is a good crash!) and the market would likely move up. If not, it could be an interesting 2019, to say the least! Also see: If BJP loses Lok Sabha Election 2019, will the stock market crash?

As investors, we have three options: (A) React to the developments and reduce equity exposure (but the re-entry point would be unclear) (B) Look only at technical indicators like PE, long term moving averages etc and modify equity exposure (C) adopt goal-based risk management.

Worried about post-election market volatility? Reduce risk with these simple steps

The key is to recognise that option (C) does not need A and B; Options A and B make no sense without C in place. So it is a no-brainer that managing risk as per the needs of a goal is all that one needs to do.

If you think this means investing systematically and “staying” investing you are wrong. Goal-based risk management is a combination of passive, systematic investing* and active risk reduction. Of course, I have written about it several times before, but since the site receives new audiences constantly, it helps to reiterate.

* Here systematic investing means investing regularly. This need not be via a “SIP”

What is Goal-based risk management

These steps if implemented sequentially would result in greater focus and success. You can automate most of these steps and create a start to finish financial plan with the freefincal robo advisory template

  1. Understand when you need the money. If you are not clear, then you can only save, not, invest
  2. Know when to invest in what asset class: equity, fixed income gold etc. Read more: How to define “short term” and “long term”
  3. Have reasonable post-tax return expectations from each asset class. For e.g. expecting 18% from equity is silly no matter how long the investment duration is, and how good the portfolio management is.
  4. Choose the right asset allocation. This means deciding to hold X% or Y% of equity so that (a) you can tolerate the volatility (b) the amount of money to be invested for this asset allocation is possible and manageable (including future increase investment).
  5. Rebalance your portfolio once a year, every year. Market volatility will increase or decrease equity/fixed income percentage holding in the portfolio. Rebalancing is a way to reset the asset allocation to the desired one. See this video for more details

How to rebalance your portfolio? A guide

6. Change your asset allocation in a step-wise manner Lot of people say unsubstantiated things like “reduce equity in the last three years, before you need money” and so. You need to reduce equity a lot sooner!  Watch this to find out how it works and why it works.

How to reduce risk in an investment portfolio

7. Shift focus from returns to the target corpus. Too much time and effort get wasted on worrying about returns. It is a lot easier if investors focus on the target corpus. This is a variable target due to inflation and other logistics. So each year we need to redo the goal planning calculation.

So each year we need to know how much the current corpus is worth. That is if it is 10% or 20% of the current target etc. This gives us clarity about where we are and what further needs to be done.

Using this method, I have gradually increased my fixed income assets close to the current target corpus for my son’s education. This allows me peace of mind and I can ignore market turbulence.

My personal financial audit 2018 (freefincal.com)

What about a diversified portfolio?

Notice that I did not mention this above! It is quite important but not as important as the other steps. If you choose just one mutual fund, say the Nifty. That is good-enough diversification across sectors. Most of us have one too many mutual funds! If you are a stock-only investor then you will need to be a lot more careful and focus on diversification.

That is it! These goal-based risk management steps should help you fight not only post-election market volatility but any kind of event-based fear.  The only problem is, are you disciplined enough, focussed enough to follow it? Or will you take what experts on Twitter and TV say?

On top of the above, you can add tactical strategies where equity exposure is varied as per “market conditions”. This is not necessary as shown before although it is possible to time the market: Do we need to time the market?

You can automate most of the above steps and create a start to finish financial plan with the freefincal robo advisory template

What do you intend to do in the coming months?

Watch my corporate presentation: Common sense approach to money management!

Do share if you found this useful

Create a "from start to finish" financial plan with this unique open-source robo advisory software template


 Don't like ads but want to support the site? Subscribe to the ad-free newsletter! 
You will get the full post-ad-free delivered to your inbox for Rs. 3000 a year. Follow this link to read the terms and sign up! 


About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

1 Comment

  1. “Understand when you need the money. If you are not clear, then you can only save, not, invest” => What does this indicate what inference should i draw here. If you cannot save then how do you invest…….Savings is the key to investment.
    Please clarify.

Leave a Reply

Your email address will not be published. Required fields are marked *