Should you invest or exit the stock market now? However, he is not sure what lies ahead for the equity markets
Chandan has been an equity investor for the past 15 years and has seen a couple of market cycles. However, he is not sure what lies ahead for the equity markets. While those around him seem to be investing on account of the positive news and favourable economic and corporate performance, he is keen to quit. The markets have run up a lot over the past three years and has been making new highs every year. Chandan invested during the previous top and does not want to repeat his mistake. He seems worried about the valuation having run up considerably, following a school of thought that is expecting a deep correction soon. He is convinced about not following the crowd and thinks it is good for him to exit when most investors are buying. However, he has a nagging doubt: what if the investors who are buying turn out to be right?#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} ICC T20 World Cup Live
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Chandan is among the investors who think it is important to get the timing right to make money in the equity market. When he had invested earlier, it seemed like nothing could go wrong. Everyone seemed optimistic about India and the equity markets. The fact that the market has peaked is known only after it crashes, at which point it is too late to quit. No one can time the entry and exit right, which is why Chandan should stick to simple rules.
Whether he should invest in equity or not should be guided by his goals. If he has long-term goals that need protection from rising inflation, he needs equity markets and the capital appreciation they provide. The average return from equity is high, but is not achieved year after year. By quitting at the end of three years of outperformance, especially when most of the others are optimistic, Chandan may be missing out a further upcycle that can help him maximise his gains. It is only from staying in a rising market that Chandan can hope to earn a better return in the long run.
As for how much he should retain or pull out, Chandan should stick to an asset allocation plan. If his goals require 40% investment in equity, this exposure should be maintained. When he books a profit, he has to find another asset to invest it in. However, limiting his exit to this percentage will help him manage his investments better. He will stay through the rising and falling market, and manage to earn the average return.
Chandan should quit only if he has decided that the equity markets are not for him. In such a case, he should invest more to achieve the same target, since his returns are likely to be lower. His returns may be impacted if he chooses to quit now only to come back after the markets have risen. Investing a proportion of savings consistently will help investors like Chandan who may not be market experts.
Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
