For regular readers of my blog this is the nth time that investors who do not have a goal find it difficult to handle volatility in the markets.
If your daughter is 5 years old and you are saving for her education or wedding, how does it matter whether the markets touch 21000 or not?
21000 on the Sensex is just a number. Like 8k, 9k, 15k, 20k and 21k.
Not having a goal means you have a ‘Wealth creation goal’ or a ‘Retirement Planning Goal’. Whatever be the goal the asset allocation and how much to invest are actually a function of YOUR GOALS, YOUR UNDERSTANDING OF RISK, and your tolerance of risk.
So in case of confused investors the questions can be as varied as the following:
1. Market has gone up, should I stop my SIP?
2. Market has gone down, should I stop my SIP?
3. I had invested when the index was 15,000 now it is 20,000 should I partially book my profits?
4. I had invested when the index was 21,000, now the index is 16,000 should I stop my losses?
5. You can never make a mistake taking a profit – I read somewhere should I ‘book’ profits?
to me all these questions and a zillion others like this make no sense. Not trying to laugh at others, but wealth has not been created by ‘market timing’. Most of the wealthy people I know have been in the markets for 30-40-50 years. A few lessons are:
1. Compounding works, Compounding works, Compounding works.
2. In a long life of investing there will be ups and downs. You invest when you have money, and you sell when you need money. However if you need money in 2011 Jan that money is in bank fixed deposits or money market mutual funds. If you need money in 2031 that money is in equities. Immaterial of whether the index is 8k, 12k, 24k or 43k. It is just a number.
3. Value, Growth are all confusing words. Either sit and learn about equity markets or do a SIP in a well managed equity fund – Indexing is not working in India. When Prashant Jain, Naren Sankaran, and others underperform the index, we will shift to the index. No hurry now.
4. If you are young REJOICE when the market goes down, if you are 85 REJOICE when the market goes up. When BUYING you want markets to be LOW, when selling you want markets to be HIGH.
so if the market reaches 21k and your goal is 20 years away, just stop looking at the nav invest, invest and keep investing. Keep learning about investing.
And ha! reading this blog, Deepak Shenoy’s blog, Sucheta’s comments….will keep you grounded.
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