If the goal is to maximise return, you need to be more discerning about where and when you invest. Hence, if you are using equities to create long-term wealth, it’s important to stay the course and work towards your goals.
Closer to the goal, one can rebalance into debt funds for safety of the corpus," said Joseph. There could be good and bad years in this period. “I don’t recommend equity if the goal is within five years ideally seven years. Also, if you leave your money in the bank, there is an opportunity cost of missing out on returns, which doesn’t get captured in this return narrative. While this seems to suggest that there is merit in waiting for the cycle to turn, the turn can only be seen clearly in hindsight. Had this 10-year SIP been started in January 2003, at the lower end of the market cycle, your return in ten years would be higher at 14% annualised. For example, a monthly SIP in the Sensex (TRI) started at the peak of the market in January 2008 would have completed 10 years now and the annualised return at the end of 2018 would be 12%. Even if you start at the peak of the market, staying the course will mean you come within your range of expected return. Asset allocation too needs to follow this principle rather than change with the market."Īsk yourself the question, why am I investing? If you have defined financial goals, you should continue your investments in line with those goals regardless of what happens in the market.Īn SIP over 7-10 years goes through several cycles of market ups and downs. Most clients are looking for steady returns above what fixed deposits give, not some spectacular return by risking capital. Nisreen Mamaji, certified financial planner and CEO, Moneyworks Financial Advisor, said, “Asset allocation is a function of asset cycles and along with that an individual’s age, risk profile and other specific requirements. You must buy or sell equity to maintain your asset allocation. If you follow a structured asset allocation, this question is easier to answer. What should you do in this situation? Exit now because there are some stocks which are expensive or invest more because the market momentum may recover from this level? However, for any meaningful upside, we need a revival in the investment cycle."
Ltd, “The downside in the market seems to be limited at current valuation. According to Gopal Agrawal, senior fund manager and head of macro strategy, DSP Investment Managers Pvt. The correction in the second half of 2018 has provided some relief. Steady inflows meant that valuations in some pockets of the market continued to stretch beyond reasonable expectation. The dilemma in this cycle has been the relative strength in equity inflows despite low growth in corporate earnings.
When the opposite happens and corporate earnings grow, equities are in favour. During high inflationary periods, when interest rates are high, physical assets like gold become a good store of value and investors also find comfort in real estate. Its best then to stick with your SIP through the ups and the downs in a market cycle. And if the markets don’t correct, your investments are continuing anyway. Hence, don’t fear a correction even if it comes. Most investors expect equity to give linear returns but that doesn’t happen," said Melvin Joseph, Sebi-registered investment adviser and founder, Finvin Financial Planners. “If there is no volatility in equity, it will be like a fixed deposit. One can argue that not everything will go up in a rally, but for long-term investors, the periods when markets are trending lower are just as important to help enhance returns over the next few years.
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