Is Your fund is underperforming?
Is Your friend’s portfolio is doing better than you?
Do you feel like Wanting to switch some funds?
Do you feel like Wanting to go for an entirely another asset class altogether? Maybe Gold? Maybe Bitcoin?
Its indeed no surprise to me (being in Investment field for 30+ years) that people change their Investment strategy itself along with the Market movemetns.
Yes....I agree that you should move with the markets but changing your investment strategy itself with change in Market Sentiments is a sure shot recipe for disaster.
You have good amount of cash to invest? You Do not want to miss the rally?
It takes character to sit there and do nothing. I didn’t get to where I am by going after mediocre opportunities.
─ Charlie Munger
Remember, often…. the itch to take some action affects most investors whenever there is volatility in the markets and when a risk event happens (like the present COVID).
And every delay in taking action increases the bouts of excitement / frustration.
And then there is this factor of FOMO (The Fear Of Missing Out).
Never let Greed / Fear takeover your behavior. Its always good to take a decision rationally after weighing all the pros and cons.
Before going ahead, you are advised to go through this article so that you make a BETTER Decision.
THE SHEEP’s ITCH
There was this Sheep which had the bad habit of always rubbing its neck against wall, tree, or pole to which it was tied to clear its ITCH.
One day its Owner tied the sheep to a wooden Pole which was placed horizontally.
The sheep with its bad habit of rubbing, could not find any object to rub its neck and started getting restless
To its luck (?), it found a sword hanging before it.
The Sheep, gleefully, stretched out its neck to relieve its itching.
And yes, as you guessed, the Sheep’s neck slowly started getting cut and blood started oozing out.
The Sheep was enjoying the rub as it gave great pleasure.
After few moments, it started feeling pain in the neck and was horrified to find blood oozing out.
It started bleeding and kicking around to escape itself but there was no one around to help it out.
And by the time, the Sheep’s owner came back, the Sheep had collapsed and died.
What’s the connection between a Investment World and the Sheep Analogy?..........The ITCH to be ACTIVE! Its in being inactive that TRUE WEALTH is created.
Where is the need to sell/buy/switch if the job is getting done?
Portfolio Reviews are absolutely necessary, but changes are not !!
Unless the fund performance has deviated too much or there is another top class alternative….no need to do the tinkering.
Yes. Sometimes the fund may be under-performing but it makes sense to analyze the reasons behind the under-performance.
Are the peers doing better than this fund?
Has there been a continuous under-performance?
Has the fund changed its mandate itself?
Remember, each fund has a role to play in the overall portfolio and each fund has a different level of risk-reward ratio.
A fund thats down 20% today could easily be UP 20% in 6 months time.
Classic example is IDFC STERLING VALUE FUND.
Those who invested in IDFC Sterling Value fund in July 2019 were seeing underperformance till March 2021 (21 months) but it took just 2 months of good performance to see the fund BEAT Nifty handsomely for the entire period from July 2019 to May 2021
The fund is a VALUE FUND and is designed to perform during these kinds of markets.
There could be a huge list of reliable and valid reasons why this particular fund is not performing as per expectations.
You are better off looking at the entire portfolio with a holistic approach than just focusing on 1 or 2 under-performing fund.
Your Wealth Journey would see lots of variation and go through troublesome periods. Invariably, there are going to be couple of years of huge gains, and there could be more than 4-5 years of flattish / negative growth.
What matters is whether your portfolio is on track to achieve the goals intended
Being ACTIVE and taking ACTION for the sake of taking action is definitely not the answer.
Sometimes, the best thing would be to JUST DO NOTHING.
Yes…its very difficult to convince yourself NOT TO DO ANYTHING when everyone around you is hyper active. You will definitely going to see the effects of the FOMO (Fear Of Missing Out).
As written in my book DON’T RETIRE RICH,
you are better at focusing on
JOMO (Joy Of Missing Out) rather than FOMO.
And please do not think I am asking you to be complacent. Not at all.
You are being encouraged to take RATIONAL decision wherein you analyse the situation in a relaxed way and without being in a hurry.
Never ever act in Panic or Excitement.
AVOID AVERAGING:
Do not average Consistently under-performing funds.
There is no point in averaging an under-performer, especially if the future does not look rosy enough and there are good alternatives available.
This is more applicable to the Sector / Thematic funds as these types of funds requires constant monitoring and actually do require regular taking of ACTION!
As long as the fund is aligned to your goals and progressing as per schedule, it shouldn’t bother you if the markets are running away or if other funds which is not in your portfolio are giving mega returns.
BORING IS BEST WHEN IT COMES TO WEALTH CREATION.
BEING AGILE and looking out for opportunities and to prevent wealth destruction is definitely on but BEING OVERACTIVE for the sake of being active is a STRICT NO-NO. Avoid overthinking and overanalysing.
The Grass is always greener on the other side. You will definitely tempted to move / switch your funds. But before doing so...ask youself why you are doing the switch.
a) Is it because of recent spike in performance?
b) Is the new advertisement of the fund very tempting?
DO REMEMBER :
Don’t try to be either overcautious or over adventurous.
And at the same time, do not jump and start ramping equity by putting your entire 100% at one go.
Stick to Asset Allocation. Don’t go overboard on debt or equity or any asset class for that matter.
Its apt to take an example given by BRAIN TRACY
When an airplane leaves Chicago for Los Angeles, it is off course 99 percent of the time. This is normal and natural and to be expected. The pilot makes continual course corrections, a little to the north, a little to the south. The pilot continually adjusts altitude and throttle. And sure enough, several hours later, the plane touches down at exactly the time predicted when it first became airborne upon leaving Chicago. The entire journey has been a process of approximations and course adjustments
Apt adjustments wherever required is an absolute necessity.
Trying to be busy in Wealth Creation is a STRICT NO-NO
A person taking a photo-copy (xerox) of a 10,000 page book definitely looks busy and for a pretty long time too.
WHAT TO DO THEN ?
1. Stick to Basics......to your Asset Allocation
2. Focus on Your Goals.
Make your roots strong.
Ensure that you have a Super Strong Portfolio capable of weathering all storms and having sufficient exposure to all types of asset classes with the right percentages and allocation. If the roots are strong, the need to take ACTION seldom arises.
But, do note, regular Portfolio review and monitoring is a definite YES.
Anytime you sell underperforming fund and buying Outperforming,
Please understand you could well be
"BUYING HIGH & SELLING LOW"
Finally, I leave you with the thought and that is .....
BETTER TO TAKE A DELAYED WISE DECISION
THEN TAKING A EARLY WRONG DECISION !
All the best,
Srikanth Matrubai,
Author, DON'T RETIRE RICH
RVCC
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