Long term investment is easy to preach and practice when the markets are going well. You can look at your previously invested amounts and see that they are having significant growth. Even the amounts that you have invested only in the last couple of months seem to be doing rather well. In other words, all is well with the world and you may even think that it will be a good idea to put all your investments into equity.
A couple of bad weeks like the current ones can bring about a complete change in the mindset of many investors. People are already thinking whether the markets are going to crash and if they should sell some of their investments to protect the gains made. How should you tackle this kind of situation?
In order to invest in equity for the long term understand these aspects well:-
- Equity returns are non-linear and can be negative over a period of time. Do not get worried about short term losses.
- The attraction of equity is that over a long time frame the growth has always been significant. If you have time on your side then there is no real need to get worked up about a 5-10 % market fall.
- It is definitely gut wrenching to see your portfolio value get depleted rapidly every day. Tell yourself that unless you need the money, you are not selling off and therefore the losses are only notional.
- When you panic and sell your portfolio, you convert the notional losses into real ones which is a bad idea.
- Like we buy in discount sales, a sharp drop in the market is a potential opportunity to buy.
- Make sure you buy over a period of time, in small amounts and with appropriate price triggers.
- If any of your goals are near then look at the possibility of mobilizing money from your debt portfolio.
- Continue your SIP, they actually are the most productive in a falling market. Add manually if you can.
- Do not look at your portfolio every hour or every day when the markets are correcting sharply. This will only increase your misery and prompt you to act in an injudicious manner.
The very nature of equity investing means we will go through both good phases and bad phases in the markets. Normally we tend to invest more when markets go up and sell when markets are correcting. Both these actions are financially quite harmful to us. Sometimes doing nothing is the best course of action. Fundamentally, if you are a net buyer in the market over the next few years, you should be wanting to have the markets go down in most of these years. This is kind of obvious and yet very few people understand this.
What of the present situation? I think there will be serious correction to about 7700 or so on the Nifty in the next month or so but we will still end the year pretty much where we are today. Therefore, as far as your investments are concerned simply stay put and add more if you have availability of money.
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