STOCK MARKETS HAVE HIT PEAK. AND WHAT NEXT?
HOW TO INVEST SENSEX AND NIFTY HAVE TOUCHED ALLTIME HIGHS WITH VALUATION SOARING. HERE IS A STRATEGY THAT NEW OR OLD INVESTORS CAN ADOPT
Market indices such as the Sensex and the Nifty are at alltime highs. The Sensex has provided year-to-date returns of 24.35 per cent, one-year returns of 16.30 per cent, and three-year returns of 27.80 per cent. If you have been systematically investing the markets, congratulations — you must be reaping your rewards now.
The peaking of markets always makes news and draws the attention of new investors. They may think this is a great time to get started on equity investing since the recent returns are well above those offered by small savings schemes, fixed deposits, and bonds. But beware — the markets are full of ups and downs. Those enjoying their rewards now have absorbed periodic shocks such as the Brexit, demonetisation, and the Uri surgical strikes that had sent the markets crashing.
Here are some thoughts to keep in mind for existing and new investors.
IF YOU ARE ALREADY INVESTED IN MARKETS
CONSIDER CASHING OUT: It’s likely that you have invested in stocks or mutual funds for an objective. If you have achieved your objective, it may be time to cash out. Staying invested is risky and your gains may erode in case of a market correction. So don’t wait for your gains to get wiped out. Employ your exit strategy and switch to a defensive fund.
EVALUATE RISKS: Higher indices could mean that several stocks — and the mutual funds that contain such stocks — may have reached peak valuations. Some stocks may even be in a bubble. Investors must evaluate the risks in such securities and exit them if needed.
LOOK FOR NEW OPPORTUNITIES: Look for value-formoney stocks, IPOs, and mutual funds that may perform optimally under the given market conditions. Finding these may help you achieve the next level of growth and stability.
IF YOU’RE A NEW INVESTOR
DON’T GET EXCITED: The prevalent euphoria in the stock markets should teach you to be cautious. Building wealth on the markets requires time, patience, discipline, and most of all, knowledge of investing. Unless you have these, resist the urge to jump into stocks that you think have performed well recently. Be thorough with your research on investment options. Consult an advisor if necessary.
YOU ARE PROBABLY NOT INVESTING IN INDICES: Unless you are buying an index fund, you are investing in mutual funds and individual stocks whose performance may not track the
rise of indices such as the Sensex. These funds and stocks need to be picked with great care. Make sure your returns expectations are realistic.
CONSIDER SIPS: Start investing with small amounts and avoid the temptation to go all-in with your hard-earned money. Mutual fund SIPs are the ideal way for small investing, riskhedging, and investing in a disciplined manner. Also, you’re relying on the stock-picking expertise of a fund manager and don’t have to do the research yourself.
DIVERSIFY: Be wary of investing only in mid and small-cap stocks and funds that have provided the highest long-term returns but have also experienced the highest degrees of volatility. Invest in a variety of stocks and fund classes to diversify your portfolio and minimize risk.
CAREFUL WITH LUMPSUM: Some experts believe the Sensex at 32,000 to be the new bottom. Others predict it will hit 50,000 in a few years. However, the truth is that experts were predicting Sensex at 50,000 even way back in 2008, just before the markets came crumbling down. Nobody can accurately predict the markets. As a small investor, the best you can do is to exercise caution and invest your money in small, controlled quantities over a long period. Investing in lump sums, especially with the markets at a high, is fraught with high risks.
HIGHER INDICES COULD MEAN THAT STOCKS MAY HAVE HIT PEAK. SO YOU NEED TO EVALUATE RISKS BE CAUTIOUS. EXPERTS WERE PREDICTING SENSEX AT 50,000 IN 2008, WHEN MARKETS CRASHED