Dear Investor,

I wish you a very Happy New Year. This is the first time I am writing to you in 2024 and I hope you find this topic interesting.

After an amazing year for the financial markets in 2023 across most asset classes, be it equities, debt, or real estate, 2024 has begun with a continued sense of optimism. But as always, there are potential risks lined up which can impact the economy and the markets, and hence even our portfolios.

I was thinking about the different factors which could potentially spoil the party, and so I have made a list of the Top risks for 2024. This list is based on my study of the economic, geopolitical and market conditions, and while it fairly covers most of the points, it is not exhaustive. So if you feel I have missed out on any risk factor which you think is important, do write back and let me know.

I have classified the risks as Low (Yellow), Medium (Orange), and High (Red) based on the combination of the likelihood of the risk materializing and its consequent economic impact.

The idea of talking about risks is not to create a scare. But to help you get a fair idea of what we are in for in 2024. Of course, you may also have a different view to some of these risks, and may wish to reclassify their category, either making them higher or lower based on your assessment. Either way the objective is to make you prepared in your investments.

Let me explain the rationale for some of the risks and how I have classified them.

This year is ‘The Election Year’ with around 49% of the world going for elections!

After a strong victory of the BJP in the state elections in Dec 2023, it is difficult to visualize PM Modi and BJP losing the Indian general elections in May 2024, and hence it’s a low-risk item (Yellow). The similar can’t be said for the US elections (Red) which will be happening in November this year where there is a lot of uncertainty.

Commodity price risk can be a factor if the Israel-Hamas conflict spills over to other middle eastern countries or if there is a blockage of the oil trade routes. Hence this is classified as Orange (Medium Risk).

Global growth is expected to slow down (Red) and this might spill over to India as well, although the domestic economy looks quite resilient currently. (Domestic growth slowdown risk is low, hence is Yellow).

Although new strains of Covid keep coming up, and it feels like a panic is always around the corner, it may not be a big risk to worry about in 2024 (Yellow).

Equity markets are at all time highs and there is some overvaluation in the mid & small cap space (Red). A correction is possible although the short term momentum is quite positive.

‘The Biggest Risks are in things that We don’t see.’

No one could see Covid-19 or 9/11 happening but these two events changed the global economy for years to come. These are known as Black Swan or Wild Card events. They are very low probability events and one can never anticipate them. However, if and when they arise, their impact could be quite high.

A few potential ‘Wild Cards’ that I thought of-

To be honest, you can’t do much about any of these wild cards today. You can’t be too conservative and wait for a war to break out. It’s not worth it and you will end up being wrong 99% of the time. However, what works best is to be well diversified in your portfolio so that you can handle any such sudden event.

“Invest in preparedness, not in prediction.”

– Nassim Taleb

How am I going to be prepared?

While you might expect an exciting answer, being financially prepared is not very complicated. Be diversified in your investments, have an emergency fundready (around 6 months’ worth of expenses), and have a Life and Medical insurance cover.

I am continuing my SIPs as they are, and I will try to add via Lumpsum during market corrections. I will also look to participate at these high levels via Market Linked Debentures, where I know my principal is protected. I will continue to invest in high yield Bonds where I get steady returns despite market volatility. And will keep adding gold via Sovereign Gold Bonds (SGBs).

That’s it 🙂


This month, I had planned to read Same As Ever by Morgan Housel.

I have started reading the book and I feel it’s a must read by everyone. The credit for inspiring this newsletter goes to this book.

Till the next time,

Vijay

CEO – InCred Money

P.S. I share my thoughts on Investing and the Economy regularly. You can follow me here.

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