Cut through the market noise: Where investors should focus in 2025

Going forward, factors like corporate earnings slowdown, sticky inflation, geopolitical tensions, higher US bond yields, strong dollar outflows due to FPI selling, and uncertainty over US tariffs can dampen market sentiment. Navigating these challenges will make managing money daunting in 2025. Investors may also be unsure of what action to take. Here are some steps investors can take to stay on course to their long-term goals.

Firstly, investors need to introspect if they can stay calm through the volatility that may play out and if they actually have a long-term investment horizon. Most investors who have entered the markets in the last five years have only seen good times and could be swayed by quick high returns. Risk-taking capacity is very different from risk-taking ability. While investors may be willing to take risks in investments, they need to ask themselves if they can accept short-term losses on these investments and the associated illiquidity.

Also Read: How to manage emotional biases during volatile markets?

Secondly, investors need to check if they are actually growing their money. Is their portfolio beating inflation on a post-expense, post-tax basis? For all the noise about equities, very few households have even a 25% equity exposure. For example, if a person has a portfolio with 10% in equities and a balance of 90% in traditional investments like fixed deposits and insurance plans, the weighted average return works out to 6.05%, assuming a return on investment in equities at 11% per annum and traditional investments at 5.5% per annum. Assuming annual inflation at 6%, this portfolio will barely beat inflation. Even a portfolio with 25% invested in equities will beat inflation only by 0.75%. Thus, investors need to focus on having at least 30-40% in equities to really grow their money.

Third, investors need to focus on what they can control. Market performance is not in the investor’s control, but what is in the investor’s control is the amount that can be invested and the time period it can be held for and the asset that it is invested into. Quick high returns may play out intermittently, but over long periods, returns tend to average out. The 10-year rolling returns as of 30 November, 2024, for Nifty Midcap 150 is 16.02% per annum, and that of Nifty Smallcap 250 is 13.33%. Thus, over returns, the focus should be on the amount invested. For example, ₹15,000 invested monthly and giving 18% per annum returns will become ₹70 lakhs in 10 years versus ₹25,000 invested monthly and returning 12%  will grow to ₹84 lakhs.

It may not be easy to start with a large amount right away. However, increasing the amount to be invested every year can help build a larger corpus. For example, ₹15,000 SIP with 12% per annum returns can grow to ₹4.62 crore in 30 years. With a yearly 10% step up in the invested amount, the corpus expected at the end of 30 years would be ₹11.97 crore.

Fourth, paying an extra EMI every year can significantly reduce the interest outgo and help one become debt-free earlier. For example, on a 20-year home loan with ₹50 lakhs outstanding, paying one extra EMI every year will lead to paying 25 less EMIs in the 20-year tenor. The temptation to fund aspirations on loans is high due to the easy accessibility of loans. As the famous American psychologist Joyce Brothers said, “Credit buying is much like being drunk. The buzz happens immediately, but the hangover comes a day after”. Take a challenge to stay away from buy now pay later financing options, salary advances and personal loans.

Also Read: Turning housing loan interest into cost of acquisition during property sale

Finally, a reminder that social media is for fun and not serious topics like personal finance. A recent study found that over 70% of fininfluencer recommendations on stocks did not make money. Videos on the best mutual funds to invest, systematic withdrawal plans were popular in 2024. Most of these content creators make unsustainable assumptions, which do not play out in reality. Avoid taking financial decisions based on short videos and rely more on credible resources.

Real change, enduring change can happen with a few steps.

Happy Investing!

Mrin Agarwal is founder-director of Finsafe India. 

Also Read: Sebi’s 2025 Shake-Up: New rules for Mutual Fund Lite, derivatives, and finfluencers on the horizon