How to invest during market crash for best returns?

How to invest during market crash for best returns?

Stock market is crashing for last 2 weeks and Nifty has dropped 31% from its high’s so far. During market crashes, people make either of these 2 mistakes:

1. People invest too early in few lump sum tranches thinking market has bottomed out only to see market crash further and further. In general, they run out of cash even before market crash get worse and will panic.
2. People invest too late after the market bounced back. They will wait for market to fall further and further as they want to invest at the real bottom – but remember, no one can know what would be real bottom. These people just wait and wait and end-up missing the golden opportunity.

So let’s see how to invest properly and systematically during this market crash in this post of market secrets investment series.

Before we get started, here are the few things I want you to remember.

1. Investment plan mentioned in this episode is my own investment strategy, don’t follow blindly. Adjust it based on your goals and surplus cash.
2. We have released a video 2 years back about a market crash happening in 2019-2020. We have clearly mentioned nifty will crash from 12K to 6K anytime. So we I have accumulated a good enough cash to buy during crash. I mean, I’m very well prepared for this crash, so no panic. If you are going to adopt this strategy, you should never panic.
3. If you want to understand why market is crashing, till where it will fall, how it will fall, when it will bounce, watch the video we released 2 years back. It will have all the details. I’ll leave the link to the video in the description section of the video or you can click the link in the top right corner of this video to view it.

Link to the old video: https://youtu.be/1Be9X4J7mgI

With that being said, let’s get started on how to invest during market crash.

First observe how market is crashing:

1. It is falling too fast. This indicates when market goes up, it will happen really slowly. I mean, every bounce will be shorted heavily.
2. Observe what happened on March 13. Nifty dropped 10%, hit lower circuit and then bounced and closed 4% up from previous day. It is pure V shaped recovery. In general V shaped recovery during crash is a sign of weakness. So market will definitely fall again.
3. Market is crashing due to just fear of corona virus. There is no economic impact yet on huge scale except for China & Italy. Economic hit all over the world will be realized only in the next 2-3 quarters. When that happens, we will know the real impact and lot of small and medium sized companies may go out of business by then. This will raise default rates on bonds and eventually will lead to bond market crash. If that happens, there is a chance of prolonged slowdown in world economy, so markets will crash hard again.
4. Finally, last Bull Run was longest in history, so this bear run will most probably deepest or longest ever. Either of these 2 should happen – which means we might take 3-5 years or longer to bounce back or market may drop below 50%, I mean around 65-70% crash is possible as well.

Now, how to invest during this scenario? First you should have a Basic investment Plan.

What is basic investment plan?

1. You should have a goal – have a clear goal on “why you are investing?”. Mostly it is for retirement, which is long term goal.
2. Develop a discipline of investing regularly – This is your regular monthly SIP
3. Develop and stick to “what if things go wrong plan”

Now, let’s see an example of basic investment plan:

1. It should have a goal

My Goal is simple – Retirement (I can have multiple short term goals within it), Target is 10 Crores by 2030 (using this amount and year just for illustration)

2. Develop a discipline of investing regularly

I have a regular monthly SIP of 20,000 rupees (amount mentioned is just for illustration) which I’ll never cancel , both in bearish and bullish market. Also you should increase this SIP by 10% every year. This 20,000 is being invested in selected stocks and mutual funds every month.

3. Develop and stick to “what if things go wrong plan”

What if things go wrong plan is the strategy you should invoke every time market crashes or corrects by more than 10%. This is the most important part and let’s see it in detail.

What if things go wrong plan

Main objective of this plan is to Reduce the no of decision I will make during market crash. Because, I might be emotional due to fear or greed when market crashes and being emotional might push me to take wrong decisions. So I will Pre-load my decisions for a falling market & Reduce or totally remove the number of decision makings during market crashes.

My – What if things go wrong plan has 2 basic Rules:

• I won’t invest in any new stocks or Mutual funds if and when market crashes. I’ll simply increase my investment to the stocks and mutual funds I’m already holding.
• I will not deviate from my investment plan regardless of whatever news, issues, or reasons. No excuses. Market may crash due to speculation and leverage, which is simply people’s greed like in 1929, or due to oil crisis like in 1987 or due to Asian currency crisis like in 1998 or due to dot com bubble like in 2000, or due to financial crisis like in 2008 or due to virus and pandemic like right now in 2020, or it may even crash due to chances of world war or an alien invasion or an asteroid strike. It just doesn’t matter. Every crash may have a reason and people will say, this is different. But it is not. Life is a cycle, whatever happened in the past, will happen again and it will continue to happen. So I will stick to my investment plan by ignoring all the unwanted noise.

So what are my plans for investing during market crashes.

I have clearly written down what I will do if market crashes or corrects 10%, 20%,30%,40% and 50% and I’ll blindly follow it during market crashes/corrections.

• When market is down 10% – Increase monthly investment 50% by manually buying stocks/MF on the same day 10% is breached and until market moves above 10% mark.

To be clear, if market crashes by 10%, increase monthly investment by 50% and buy stocks/mf on the same day and on 1^st working day of every month until market moves back above 10% mark. Just remember the word, 1^st working day of each and every month.

So, if market crashes by 10% on Feb 15, increase monthly investment by 50% and buy stocks/mf on the same day (Feb 15) and on 1^st working day of every month (march1, April 1, may 1, etc) until market moves back above 10% mark.

If regular monthly investment is 20,000, Increasing monthly investment by 50% will make it 30K per month from now.

This is for 10% correction, let’s see about the rest.

• When market is down 20% – Double monthly investment by manually buying stocks/MF on the same day 20% is breached and until market moves above 20%

If regular monthly investment is 20,000, Doubling monthly investment will make it 40K per month from now.

• When market is down 30% – Triple monthly investment by manually buying stocks/MF on the same day 30% is breached and until market moves above 30% mark

If regular monthly investment is 20,000, Tripling monthly investment will make it 60K per month from now.

• When market is down 40% – Increase monthly investment 5 times by manually buying stocks/MF Units on the same day 40% is breached and until market moves above 40% mark

If regular monthly investment is 20,000, Increasing monthly investment 5 times will make it 1L per month from now.

• When market is down 50% – Invest 50-75% current debt corpus or cash immediately in stocks/MFs and have remaining corpus for investing during the recovery

Note: As per the rules mentioned above, these additional should go to stock and mutual funds I’m currently and regularly investing in. No new stocks or funds are allowed. But I’ll continue to do regular yearly review of my portfolio.

Let’s take an Example:

January: Market was normal in January 2020. So my investment was also normal. I have invested 20,000 through SIP in Jan 2020.

Total Investment in Jan is – 20,000 rupees

Note: remember 20K SIP amount used here is not my actual investment amount, it is just for illustration.

February: After a long time, Nifty crashed below 10% on Feb 28^th. So I immediately increased my investment by 50%, which is 10,000 rupees. I bought MF & Stock worth 10,000 on the same day.

Total Investment in Feb is 20,000 rupees in SIP & 10,000 rupees in additional investment, so 30,000 rupees.

March:

Do you remember what I mentioned previously? If market crashes by 10%, increase monthly investment by 50% and buy stocks/mf on the same day and on 1^st working day of every month until market moves back above 10% mark. Just remember the word, 1^st working day of each and every month.

On the first working day of March 2020, Nifty is still below 10% from lifetime high, so I bought stocks/MF for another 10,000 rupees.

From regular SIP, 20000 will be invested in March. Total investment so far is 30,000 in March.

On March 12, Nifty went below 20%, so now I need to double my regular monthly investment. Remember, regular monthly investment is 20,000, so I need to invest 40K totally this month, out of which 30K is already invested, so I’ll invest 10K more on the same day.

Total investment so far is 40,000 in March.

Then on March 13, the next day, Nifty went below 30% but bounced back to 20%. But rules are rules. So now I need to triple by regular monthly investment.

Remember, regular monthly investment is 20,000, so I need to invest 60K totally this month, out of which 40K is already invested, so I invested 20K more on the same day.

What will I do in April?

• Currently market bounced back from 30% drop and it is 19.9% from Life time high. So it is not even below 20%.
• If it stays above 9945(20%), I’ll invest 30K in April (50% increase in investment as per rules)
• If it goes below 9945 (20%) but stays above 8702(30%), I’ll invest 40K in April (double of regular investment as per rules)
• If it goes below 8702 (30%), I’ll invest 60K in April (triple of regular investment as per rules)
• If it goes below 40%, I’ll invest 1L in April (5X of regular investment as per rules)

And this will continue each and every month.

You can modify the above plan according to your risk profile as well.

For Example, Just increase your SIP by 2X of the drop. So, if your SIP is 20K,

For 10% drop, you can increase SIP by 20% (24K)

For 20% drop, you can increase SIP by 40% (28K)

For 30% drop, you can increase SIP by 60% (32K)

For 40% drop, you can increase SIP by 80% (36K)

For 50% drop, you can increase SIP by 100% (40K)

Or you can increase your SIP same % of the drop. So, if your SIP is 20K,

For 10% drop, you can increase SIP by 10% (22K)

For 20% drop, you can increase SIP by 20% (24K)

For 30% drop, you can increase SIP by 30% (26K)

For 40% drop, you can increase SIP by 40% (28K)

For 50% drop, you can increase SIP by 50% (30K)

You can modify the plan according to your risk profile and the cash in hand. You should have a good amount of cash to follow this plan. Even if the market continues to go down for next 2-3 years, you should have enough cash to invest as per this strategy. So create a plan based on your current cash holdings.

Remember, all these calculations of 20%, 30% drop and reminder to invest additionally are all automated. I’ll just get a message automatically on when to invest based on the plan mentioned above. If you want, I can create a group and send these automated messages to you guys automatically. It is completely free; If you are interested in it, leave a message in the comments section. If there is enough interest, I’ll create a group and share the link to you guys directly.

I’m putting in lot of effort to create these content for you. So if you found this useful, please share it with your friends – It will take only 10 seconds for you. Just share it in your FB or whatsapp status. That is the only thing I expect from you. If this post hits 25,000 views in next 15 days. I’ll share my personal portfolio of stocks & MFs I’m investing in.

Also, if you want to have quick check on these Nifty levels and how much market has fallen from the peek, you can check our website. It’ll have a live feed.

Live Feed Link: http://marketsecrets.in/technicals/nifty-investment-levels

If you have any queries, please leave it in the comments. I’ll be happy to address them all.

To learn this investment strategy in detail, watch our video:

Link: https://youtu.be/rZBjAJmqsKs