Investing lessons from the election-led market volatility

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The 2024 Lok Sabha election concluded with the Bharatiya Janata Party-led alliance securing a majority. However, the disparity between exit polls and the actual results led to a sharp market surprise. As investors navigate the resulting volatility, it’s crucial to adopt strategies grounded in behavioural finance. Here’s how to maintain a resilient and growth-oriented investment approach.

Drawing from Nassim Taleb’s concept of antifragility, thriving amidst disorder and uncertainty is possible. Here’s how to apply this to financial planning.

• Volatility: Invest in diversified equities and use the barbell strategy, balancing low-risk assets like government bonds with high-reward opportunities. With the right mindset, volatility can be beneficial.

• Optionality: Maintain flexibility with various investment options and keep cash reserves to capitalize on market downturns. This approach allows you to seize opportunities when they arise.

A well-structured asset allocation is crucial. Diversify across asset classes, sectors and geographies to spread risk and enhance stability. Regularly rebalance your portfolio to maintain desired asset allocation and risk levels. This foundational approach helps mitigate the impact of market volatility and political events, ensuring that no single event or market condition can significantly derail your long-term plans.

Behavioural biases often influence investor reactions, especially during elections. Understanding and mitigating these biases is key to making sound investment decisions.

• Confirmation bias: Investors might favour information that supports their political preferences, leading to skewed investment decisions. Counter this by considering diverse perspectives and focusing on