DON'T RETIRE RICH

Sunday 16 June 2024

SMART MOVES TO MASTER MARKET HIGHS

 

It’s exciting to see our portfolio grow every single day in these current market situations.
With the Sensex touching 76,000 and showing no signs of cooling off, the rise has boosted all kinds of portfolios, both the well-crafted ones and even the less meticulously managed ones! In these exciting times, its natural some investors do book profit and maybe miss out on the BIGGER gains if the markets continue to rise.

But what if the market falls?
While both points do merit attention, its but important to note that the majority of experts are of the opinion that the markets continue to remain bullish albeit with normal dips.

What to do during these times of Daily Market Peaks. Let’s dive in.

 

1. The Temptation to Book Profits

Many investors follow the common advice to "buy low and sell high." You might think it’s the perfect time to cash in on your gains. While this strategy makes sense in certain situations, it may not be the best move if you don’t need the money immediately and your equity-to-debt ratio hasn’t changed significantly.

Selling your stocks now because the market is high is like selling your house just because property prices have gone up!
If you don’t need the cash and still believe in the value of your home (or stocks), it might be better to hold on.
High fixed deposit rates—currently around 7-8 percent—might look appealing, especially since interest rates are expected to drop later in the year. However, compare that with the long-term returns of 10-12 percent in quality stocks and funds, and you might see the benefit of staying invested.

 

2. The Urge to Sit on Cash


Its definitely tempting to sit on cash and wait for the Market correction.
. This approach is risky, especially if you don’t regularly track the market or lack extensive investment knowledge. It’s like trying to time the perfect moment to jump into a skipping rope game—it’s easy to miss your chance and end up worse off.
Remember, many experts predict the market will keep climbing. Don't let the fear of missing out stop you from your regular investments, like Systematic Investment Plans (SIPs). SIPs are like a regular savings plan but for stocks or mutual funds.
SIPs are designed to average out different market levels and create wealth over time.
We have seen how monthly regular sips even in underperforming funds have beaten the Fixed Deposits hands-down.

For example, in one of my blogs (October 2022), I wrote and proved how one of the worst funds (at that point of time) JM Focussed had given only 1.51% CAGR for 14 years but a monthly sip in the same fund had given a Double Digit return!



(OF COURSE, I HAD ALSO WRITTEN HOW JM FUND HOUSE IS POISED TO BOUNCE BACK AND WAS PROVED RIGHT BY NUMBERS JUSTIFYING THE SAME WITH JM FOCUSSED FUND BECOMING THE NO.1 FUND IN RETURNS IN THE LAST 2 YEARS…SINCE THE TIME OF THE ARTICLE)

3.  The Herd Mentality

While positive economic signs continue to indicate a potential market rise, blindly following the herd can be risky.
Consider your own situation.
If your portfolio is already heavily invested in stocks and you'll need the money soon, it might be wise to take some profits off the table.
Think of your portfolio as a pie chart - ideally, different asset classes like stocks and bonds make up slices of the pie.  If the stock slice gets too big, you might need to adjust to maintain a healthy balance. This balance depends on your age, risk tolerance, and financial goals.
The appropriate level of debt or equity in your portfolio depends on various factors, such as your risk appetite, upcoming financial needs, and age.

Remember, a rising market shouldn't make you lose your cool. Make informed decisions based on your financial plan and avoid these common mistakes!

 

SO WHEN TO SELL THEN?

Selling early might mean missing out on even greater growth in the future. Here are some situations where redeeming your equity mutual fund might be the smart move:

Goal Achieved!
If your initial investment aimed to build a specific corpus (total amount) for a financial goal (like a down payment on a house), and you've hit that target, then congratulations! Redeeming some or all of your funds to make that dream a reality is a great reason to sell.

Funds Underperforming

Is your chosen equity mutual fund consistently lagging similar funds (its peers) and the benchmark index it tracks? This could be a sign of a struggling strategy. Redeeming and exploring better-performing options might be wise.

 

Fund Philosophy Change:
he way your fund invests (its strategy) might have changed significantly. If these changes don't fit your investment goals or risk tolerance anymore, redeeming and finding a more suitable fund might be necessary.

Change of Plans:
Your life goals and financial needs do keep changing over time.

Maybe your investment goals have changed (like needing more income instead of just growth). Re-evaluating your portfolio and potentially redeeming some funds to align with your new goals might be prudent.

Emergency Cash Needed:
Unexpected situations happen. If you have a real financial emergency, you might need to sell some or all of your investments to cover those costs. Redeeming your equity mutual fund might be unavoidable in such situations.

Asset Allocation Adjustment:
Regularly reviewing your asset allocation (the mix of different asset classes in your portfolio) is crucial. Suppose the market surge has caused your equity allocation to become unbalanced compared to your risk tolerance or financial goals. In that case, strategic redemptions can help you rebalance and maintain a healthy portfolio.

 

Remember:
Don't let market excitement cloud your long-term investment strategy.
Just because the markets are buzzing with activity, doesn’t mean you too should!
Consider these factors before redeeming your equity mutual funds, and consult a financial advisor if needed, to ensure your decisions are aligned with your overall financial plan.

 


## Disclaimer

 Remember, investing in mutual funds carries risks, and past performance does not indicate future results. Always consult with a financial advisor before making any investment decisions.

 

Regards & wishing you Super Financial Success

Srikanth Matrubai

Author: Don’t Retire Rich

Qualified Personal Finance Professional

AMFI Registered Mutual Fund Distributor

Note: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions.

 





All the best,
Regards,
Srikanth Matrubai
MUTUAL FUND DISTRIBUTOR
REBALANCE VOLATILITY CERTIFIED COACH
Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH


You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

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