Investments into equities are suggested for those investors who wish to invest keeping a long term scenario in mind. But there are certain investors who invest in equities when they ride high and these investors are termed as speculators. Now this practice may not always be favorable to speculative investors since in the eventuality of a downfall due to bad market timing, can wipe out all your investments.
Opting for debts like personal loan, home loan etc will be the only option left for you to finance your requirement which may not be favorable in these fluctuating interest rates period. For the same reason of protecting investors from the credit route, financial advisors advise current and prospective investors to not time the market and set a long term goal for their investments.
What should be understood is that even in cases where the market is performing well, uncertainty prevails as to for how long can investors enjoy the honey moon period. Also in situations where the markets are in their lows, it is not necessary that the situation will prevail forever. Patience, in these situations, plays a very important role. Most investors act on their impulses and make hasty financial decisions which can work against you sometimes. Opting for new funds and exiting existing funds not only reduce the value of your returns also your funds may not enjoy good market performance which might have prevailed for a day or two. Because of the euro zone debt crises, the uncertainty in the market has been there due to which it is not possible to collect accurate predictions as to how the equities perform. However, seeing India’s GDP growth over the next few years what is sure is that with the increase in the economic activity, GDP may rise above the inflation rate proving to advantageous to investors.
What you need to do?
Utilize Mutual Funds for investing in equities. Investing through the Systematic Investment Plan (SIP) route can allow you to monitor the performance of the funds where you have invested in. Make sure that you review your portfolio at least once every year. If any fund is under performing in comparison to its benchmark or with its competitors for more than three quarters, it is better you speak with your financial advisor and analyze the pros and cons of taking such a decision.
If the funds in your portfolio are close to their maturity period, use the Systematic Transfer Plan where your returns will be sent to a liquid fund or be reinvested in a short term debt fund. This is a very important step since after earning good returns you do not want to risk your portfolio due to market volatility in the very last stage. Getting reduced returns than what was projected up to a certain level might be considered but less than that will end up in negative returns wherein you may not be able to complete your financial requirement for which the fund was setup. Opting for a loan to bridge the gap may be used. However make sure that the loan is not a huge amount since it can burden your finances on a later where you might be paying higher EMIs.
Although a low equity returns on your portfolio can be expected, it is important that you wait for a little longer for the markets to bounce back. The key to building a good portfolio is to diversify your fund allocation. Investing a major chunk of your income into one or two assets will benefit you much since the returns earned on them, if the sector performs below average, will be quite low. However if you manage to diversify your investments, and invest in about 4-5 mutual funds, when one or two funds underperform, the returns on other funds can help you stay afloat!