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Should you sell your investments in the falling markets?

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Will nifty break 15,000 levels?

Is the market rally over? 

Should we stop our SIP’s?

Trust us, these are just the very few questions surrounding each and everyone’s mind. In this article we will try to help you, so that you can develop a bit of the right mindset and approach on your future action plan.

1. Never time the market

Have a look at this chart, 

Looking at the growth of nifty from 1000 to 6000 in 2007, you might have invested in 2007, But the 2008 crash might have destroyed your wealth and you might have exited in 2009, only to never return back to the stock market. But post that, nifty at 9,000 level in 2015. 

Again you gathered courage to invest, after seeing the massive growth and might have entered at 9,000 levels in 2015, only to see 0% returns till 2017. Seeing no returns for 2 years, you might have exited. Fast forward to 2021, nifty at 18,000 level i.e. 100% returns from 2017.

You see, simply time in the market matters over anything else. 

Be a disciplined investor. Stick to your strategy no matter what and don’t try to time the market. There will be periods of negative returns & sideways market, your job is not to time the market.

2. Risk Management

One way to have risk management is to have a diversified portfolio rather than having a concentrated one. 

Below table has yearly returns for different investment options. You see, for each year, asset classes [be it the debt, equity or gold] have their year of underperformance and outperformance. Having a concentrated investment in any of the asset classes could have made your portfolio very volatile. 

A simple allocation of equi-weighted portfolio in each asset class, can make your portfolio less volatile and make you earn consistent returns. [refer to last column]

Therefore have a diversified portfolio, do rebalancing as and when needed and stay invested. 

3. Stay In The Market

Market will do what it wants to do in the short term, will test your patience, will give you many instances to exit, will hit your psychology……but your job as an investor becomes the most boring one i.e. ‘Stick To The Plan.’

Take another interesting example, 

With 15,000 monthly SIP, with 5% annual increase, assuming 15% XIRR, It will take 168 months (14 yrs) for you to make your 1 crore. However if you continue the same, next crore is added in just 49 months (~4 yrs), the next in just 31 months (~2.5 yrs), and you can make your 10th crore in just 9 months. 

You see, reaching your 1st crore is the most difficult part. It might take years to reach your 1st crore corpus with continued SIP. Most of the people quit in between and what they miss is a massive wealth creation phase. 

Just after reaching your 1st crore corpus, your 2nd crore can be added just in a few years and a 3rd one in even less. This is the magic of patience and continued investing with discipline. 

4. Beat inflation

Remaining invested is important to preserve your purchasing power of money. No one is telling you out there that inflation is silently eating up your money. Rs 16 lakh crores of current and savings account balances with scheduled commercial banks as of Jan 1, 2021, lost around Rs 65,000 crores in purchasing power over 2021, just because of inflation. 

Therefore avoiding the market is not a solution, just remain invested to earn inflation beating returns.

5. Invest in quality companies that you understand

Don’t run for businesses you don’t understand. Don’t run for loss making businesses if you don’t understand them. Don’t try to mimic venture capital and private equity funds to earn those extranormal returns. In the latest filings, Softbank and Tiger global, one of the biggest funds globally, have incurred a loss of $26 billion and $17 billion for the year and have announced cutting down on their VC’s investment. But the thing is, they can afford to lose that amount of money because of their massive size, but you can’t!

If you don’t understand such businesses, stay away, but stay invested in quality companies!

The path to the riches lies on the most boring and gentle road. This does not usually excite investors, but sticking to the quality companies, keeping basic investing habits in place, and investing in the right companies can be a key for survival. 

Therefore concluding remarks being that the market will move up, will move down, will be sideways for years, your job is to “Stick To The Plan“.

Until then!

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