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Stock Market Is Up - What Should I Do?

Estimated reading time: 3 minutes 5 seconds

Nifty has given an absolute return of 29% since the beginning of this year and relevant questions in every one's mind are should I invest more or should I book profits? Where are the markets headed? Many savvy investors, learning lessons from 2008 crash, do not want to be caught in the downward spiral, if it were to happen in the future. But at the same time, they don't want to be left behind in the participation of the India story especially after the positive sentiment created with the election results.

Everyone, who knows a little bit about savings and investments, has wealth creation in mind. While we may tend to believe that the short-term events really make a difference, it is sticking to the basics that create wealth. Recently, there was a message circulating on the social media with a comparison between the returns on stock market and recent real estate deals, including the one belonging to late Mr. Rajesh Khanna, the yesteryear super star of Bollywood. The total return on the real estate was a whopping 2428 times however if we look at the annualised return over 44 years then it is 19.38%. The stock market sine 1980 over 34 years has given a return of 17.70% not accounting for 2-3% of dividend return. The lesson here is that you need to have a fairly long-term outlook in mind to create wealth, be it real estate or be it equity.

Much has been said about the basics of investing, however, I am summarising them below to remind all of us and not get carried by the daily market movements.

Basics of Investing

  1. Create a financial roadmap and plan for yourself and invest regularly as per the plan.
  2. Assess your risk profile and create appropriate asset allocation matching the risk profile. No point in calling yourself as Moderate when 80%-90% of the investments are locked in low return fixed deposits. This will just put ridiculously high return requirements on the remaining 10%-20% investments to match the Moderate risk profile return expectations.
  3. Do not over diversify your investments. Holding a large number of funds (say 15) is not going to help, as many of them may be quite the same with different names. This will not enhance your returns instead subdue performance with increased risk in the portfolio.
  4. Be clear of the exit criteria. According to me there are only three.
  5. An asset class has become more expensive due to upward market movement so requires lesser % allocation. A valuation based asset allocation model helps here.
  6. Liquidity is needed for your goals so you need to exit some investments. A good financial plan will anticipate this well in advance.
  7. A product's fundamentals have changed and require exit to preserve returns or cut losses.
  8. Don't get swayed by the flavour of the season and attractive marketing campaigns.
  9. Stop worrying about short-term market movements and stick to the plan. Keep in mind the typical holding period for each asset class. I have talked about this in a previous article.
  10. Review your financial plan at least once a year and monitor investments on a regular basis.

I have underlined words like Financial Planning, Asset Allocation, Risk Profile, and Exit Criteria etc. because these are important. Disciplined investing with patience is key to ultimately creating wealth and achieving financial freedom. If you have never made a financial plan for yourself and did investments randomly in the past then it is necessary that you take steps in the direction of creating a plan. Don't expect quick results but rather give yourself 6 months to 1 year to get everything in order. Better Late Than Never!

The writer is the Managing Director of Mitraz Financial Services Pvt. Ltd and can be contacted at anup.bansal@mitrazonline.com

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Disclaimer - Mitraz is NOT a Loan Provider.

It is a Wealth Management & Advisory Firm.