Don’t Try to ‘Time’ the Market, Stick to Your Investment Plan
Experts advise against entering the market to cash in on the poll euphoria. Instead, investors must go about putting their money in a staggered manner with a 15-18 month horizon, says Madhu T
Many cautious investors, who played extremely safe and chose secured investment options during the election year, are tempted to cash in on the euphoria surrounding the new government’s formation at the Centre after the exit poll results, say several financial advisors. Talk of stock market hitting 30000, softening of interest rates, and policy initiatives by the new government to fuel economic growth are luring investors to abandon safe perches and wade into the troublesome debt and stock markets for handsome returns.
Most investors had altered their original plan and opted for safer avenues like liquid funds, FDs, fixed maturity plans as they wanted to avoid the volatility ahead of the elections.
“It always happens in the market. Many investors don’t see important events as just one of those things that influence the market in the short term,” says D Sundararajan, investment consultant, Trendy Investments. “With exit poll results and all great predictions for the future, many investors believe it is time to make some quick bucks. Unfortunately, a new high in the stock market always lures investors back into the market and mostly they are oblivious of the risks,” he adds.
Think Like a Novice
Many advisors barely hide their an- noyance, while discussing about investors who try to ‘time’ the market. They claim this tribe almost always gets it wrong and loses money, but never mends its ways. “Look at them. They got out when the market was around 20000 because they didn’t see any upside. Now, they are bullish when the market is around 24000,” says an investment consultant, who does not want to be named. He believes those who are getting to the market won’t have the patience to go through the entire cycle and will cash out when the market is volatile or moves in a tight range.
Lovaii Navlakhi, MD & chief financial planner, International Money Matters, says that he treats individuals trying to get back like someone who just got a lot of money today. “The first thing is to sit down with them and fix goals and (make) an asset allocation plan for them. The next thing is to go about implementing it in a systematic way,” he says. Navlakhi offers an example to drive the point home. A person wants to invest .` 100 today. As per his asset allocation, he is supposed to invest .` 60 in stocks and the rest in debt. But with the market hovering around all-time highs, the person would put just .` 20 in the equity immediately and plan for a staggered investment in the next three months. “Between exit poll and actual results and between the new government formation and policy formulation, the market may see many ups and downs and it will give the person enough opportunity to invest in the market,” says Nav-
Between exit polls & actual results, & between the new government formation & policy formulation, the market may see many ups & downs & it will give the person enough opportunity to invest in the market
lakhi. He adds that the same strategy worked well for his clients when the market was 8000 last time and people were scared to put money. “Those who listened to us and invested money back in a staggered manner, managed to invest all their money by the time the market hit 10000. Those people don’t try to time the market anymore. They have seen how it works.”
Don’t Lose Patience
The markets, both debt and equity, are likely to test your patience in the next few months, say experts. “One should give up the idea of making 5% or 10% in the next few weeks or months and focus on long-term goals. If you don’t have the patience to go through ups and downs, you are again likely to flee the market,” says Sundararajan. If you enter when the market is hovering around all-time highs, you would mostly end up selling at a loss if you can’t stomach the volatility. Sundarajan says the same rule applies to debt investments. “Interest rates are unlikely to fall any time soon. It will take at least a couple of quarters. Investors who are entering into debt market should keep this in mind,” he says. According to him, it makes sense to invest in income funds, income opportunity funds, and dynamic funds with a view of 15-18 months.