Opt for asset allocation rather than timing the markets

By BankBazaar | November 9, 2011

Once investors’ sign up for investing in the markets, there are a lot of different reactions pertaining to how experienced each investor is in the wake of the market volatility. If you are a new investor, obviously there is going to be a lot of skepticism from your side as to the markets under performance. As a result prompting you to take hasty and at times unwise decisions like moving out of such funds and reinvest in other whereby you will be loser since there will be a lot of deductions and charges your fund amount might face cutting the profits down to a mere amount.

The second class of investors are those who have stayed in the market for about 3-5 years and have experienced such shocks, and are willing to wait for the great time to bounce back. These kind of investors may have tasted some bad experience of moving in and out funds, as a result are currently on firm grounds.

The third class of investors are those, who are the experienced class and anticipate profitability at the end of this phase of downturn. These type of investors basically are big players and are willing to wait for markets to bounce back and are not in the psychological state of mind to move in and out of funds. It has been observed that, since August 2011, there has been a significant increase in the sale in the number of equities and its related products and schemes. The Indian investment crowd, largely, is of the opinion that, there is an opportunity for growth provided they stay firm during this downturn.

In such an unpredictable scenario, investors must not try and time the market since the markets are very unpredictable. One should not only consider domestic factors but also take international economic performance into consideration. Those investors who have built their portfolio with a core decision like linking the investment to a finance a requirement should not time the market as it can push them into a huge risk of losing their investments prompting them to adopt for debts like personal loans, car loan etc to finance their personal requirements. This can be quite damaging since the tenor of the loans along with the interest rates they carry can prove to hamper the growth of your portfolio. So the best advice would be to – Wait and Watch. Try not to even re balance your portfolio for some time now till the markets are on the road to recovery. Re balancing again can make you miss the opportunity for you to gain in the future if you opted of that particular. You may never know whether the company in which your fund is invested in can be the next Infosys!

Investments in gold is again a risky proposition since, such investments do not pay out any dividends or interest. Chances are that the gold you hold might depreciate in value if the prices are corrected and so since this asset class does not generate a return it is better to not opt for it.  Considering the Indian sentiments, Gold is a traditional form of savings but there are reasons to believe that this particular asset may not perform very well in the coming few years.

Summarizing, the best advice considering the volatile market situation now is that, it is better to stick to the funds that you as an investor hold. The current market analyses show that in the next 3 months, the markets appear to be under performing to neutral. However, predictions during a 12 month period indicate that the Indian stock can again enjoy a bull run. Considering the fall in the domestic interest rates and also global economic slowdown leading to lower prices in the commodities further leading to lower inflation rates, short term volatility can be expected but hopefully not in the long run.

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