Avoid These Dilemmas While Investing In Equities

Hemant Rustagi

Chief Executive Officer, Wiseinvest Advisors

The stock markets in India have been performing well for some time now. While the general feeling is that investors usually make haphazard decisions during market downturns, the fact is that even rising markets can test the resolve of investors. Their not-so-pleasant experiences of the past of seeing their gains vanish after a good run in the market often makes them nervous after future prospects of the market. Hence, it is important for investors to keep their focus on their goals and avoid making abrupt changes to their portfolio and investment strategy. Here are some of the dilemmas faced by investors and how these need to tackled by them:

Why not exit now and re-enter when the markets go down? 

Although there is a always a possibility of a correction in the market, it pays to stay invested as the investors who stay committed to their defined time horizon get handsome rewards in the long run. That's because over the longer term volatility tends to work itself out due to offsetting of bad years against good years. Timing the market can be a futile exercise as it is very difficult, if not impossible, to predict short term market movements with perfection.

Will a goal-based investment approach help me stay invested?

Most investors find it difficult to handle dizzy heights of the market because they do not invest with defined goals and time horizon. If you react abruptly, you may end up exiting too early and miss out on gains from a rising market. That's why, it always helps to follow a goal based investment strategy as it ensures that only long-term money is invested in equities. Therefore, if you have been following a goals based investment strategy, you must continue your investment process irrespective of the market condition. If you are one of those investors who didn't start investing by aligning their investments with your goals, you must do it now as it will give you a clear indication of what to do with your equity fund investments.

Do I need to rebalance the portfolio within an asset class? 

It is important to ensure that one has a balanced portfolio in terms of exposure to different segments of the stock market. It is quite common to see investors chasing short term performance and investing in top performing funds. It is quite likely that someone following this strategy may have built a portfolio having very high exposure to mid and small cap funds. Although these segments have the potential to improve overall portfolio returns, it is equally important to know the attendant risks. If you have a portfolio that has a bias towards these two segments, it would be prudent to rebalance the portfolio by pruning the exposure to these two segments and increasing exposure to either large-cap funds or large-cap oriented multi-cap funds. Remember, equity by itself is an aggressive asset class and hence it is not always a great idea to make the portfolio very aggressive.

Have I missed the opportunity? 

When stock market does well, it is quite common for investors to have that missed out feeling, especially for those who have been wanting to start investing in equity funds but didn't do enough to start investing. Needless to say, it becomes difficult for them to make a decision in the midst of a rising market. If you are one of those investors, you must remember that that investing in equities is a process and not a one-time activity. Therefore, the right strategy would be to follow a disciplined investment approach as it invariably allows you to get the best from your equity fund investments by allowing you to benefit from "Rupee cost Averaging"

Should I begin investing thru SIP at the current level? 

If you decide to invest thru SIP, there is no need to allow the current market level to come in the way of starting the process. The very purpose of investing thru SIP is to avoid timing the market and benefit from "averaging" by investing at different market levels. Hence, if you intend to invest for long-term now in a disciplined manner, go-ahead and do so straightaway.