Worried about market crash? Time to rebalance your portfolio

Sensex ended 2,700 points lower on Thursday wiping out Rs 13 lakh crore of investors' wealth after global markets came under huge selling pressure amid Russia's invasion of Ukraine.

In such a situation what should be your strategy to protect your portfolio from further market swings. Should you sell or buy at this dip? Well, before rushing at any decision it is important to review and rebalance your portfolio if the allocation in equity or any other asset class has substantially become underweight or overweight.

"One need not straightaway jump to make changes in their portfolio just because the tension between Russia and Ukraine have escalated. The key in such a situation is to stick to the asset allocation and investment plan which is based on your needs and financial goals. Situations like these can have an impact on the stock market across the world and India," says Harshad Chetanwala, Co-Founder MyWealthGrowth.Com.

When it happens the value of your equity portfolio also get affected. The loss on the equity portfolio is notional due to the situation, hence you should not react immediately and avoid making it an actual loss by taking a hasty decision of selling it at a loss or low prices," he adds.

Chetanwala further states, "At present, it is better to stick to your asset allocation and if you have a surplus for long term investment then you can invest in a staggered manner to take advantage of this volatility."

Maintaining the right asset allocation throughout market cycles should be an integral part of investing. You should rebalance your allocation in equity or any other asset class if it has substantially become underweight.

Else, you should continue to remain invested with the existing allocation even though the stock market has tanked today (February 24).

To rebalance the portfolio, you can reduce the allocation from the asset class which has become overweight and reinvest the same money in other asset classes.  

For example, if the equity portfolio is down by 10 per cent, you can take the advantage of reduced prices to buy more equities.

At present, there is a possibility that equity allocation in the portfolio would have decreased as the stock market has tanked. You can rebalance by buying some of the funds or stocks that are available at low rates.