Lately I saw a tweet that said Indians are waiting for a market correction more than Covid-19 vaccine. This incident puts some light on the very complex nature of human emotions. We live in this constant habit of complaining. It kind of takes me back to my school days. Once I got 70/100 in Mathematics and my parents decided to disown me. Sort of. The next term, I worked really hard and got 92/100. But, my dad still complained and said:
- Where did 8 marks go?
- Make sure you don’t fall back to the 70s.
So just like the stock markets, we try to juggle our emotions between between greed and fear. As we establish this, let’s understand what is the way forward for our investing regime. Nifty is near it’s all time high. If I invest now, and market shows a sharp correction, I may lose all my money. Or, markets may jump much higher and I miss out on a great earning opportunity if I don’t jump in right away. So the question is, should I invest in stock market now or should I wait?
Solution to the Conundrum:
In whatever experience I have had in stock markets, I have learnt that one thing is for sure. Nobody can predict the direction of the market with 100% accuracy. So if you are looking for an expert opinion which would give you a definite answer, wait no more. Because Mr. Buffet himself won’t be able to answer that.
So the next obvious question that comes up is what needs to be done in such a scenario then? Wait and watch? But that will make you poorer by every passing day. Your spare money would be fetching you far less interest than inflation. You may also risk losing the habit of saving while you wait. You definitely don’t want that.
The best you could do in this case would be, to make a strategy. Hedge your risks, hope for the best and prepare for the worst. This is easier than it sounds. Let’s understand how I’d go about it in such a situation.
Disclaimer: Please not that all views in this blogpost are entirely personal and by no means an investment advice. Please do your research and consult your financial advisor before investing.
1. Balancing the Portfolio:
Recently, we discussed why and how to buy gold. In that article, we established a negative correlation between stock markets and gold prices. It is observed that whenever markets are bullish, gold prices come down and when markets are unable to hold strong, gold rises to the occasion and supports your portfolio.
Pay attention to the instances from 2009, 2012, 2014, 2016 and 2020. Gold has bounced whenever Nifty showed a dip.
What to do with this information now? How does one balance the portfolio by implementing the above theory? Well, I would recommend going for a smallcase. Smallcase is a self customized basket of shares. For this particular scenario, I created a smallcase that consists of two ETFs (exchange traded funds). One of these ETFs is based on the performance of Nifty 50 and the other is based on the performance of Gold. I have kept weightages of 60-40 on Nifty Vs Gold but that can be tweaked any time.
This means that if either of the two underlying assets (Nifty or Gold) falls down, my portfolio will not take a massive hit.
You can access the small case named ‘Higher the better” from here.
Please note that it is not necessary to go via smallcase route in order to invest in stock markets in such a way. You can simply find these two ETFs listed on markets and purchase shares immediately. Just make sure that you purchase it in the weightages that best suit you.
2. Systematic Investment Plan (SIP):
Another way to safeguard your portfolio and live without the fear of correction is SIP. If you plan to invest for a longer duration (5 years+), then SIP will never ditch you (mostly). Maintaining your financial discipline will average out all the dips for you. This is based on the concept of rupee cost averaging.
Textbook definition of rupee cost averaging according to ET is as follows:
Rupee Cost Averaging is an investment technique applied to regular fixed instalments in a mutual fund scheme. As the amount is fixed and regular, more units are bought when the market price of shares is low and lesser units are bought when the price is high. Through this mechanism, the investment risk is spread across market movements.
Therefore, you should SIP and forget. You will definitely see the magic of compounding on your portfolio. I personally advocate the use of SIP because it is a hassle proof way of investing. So stop asking, “should I invest in stock market now” and continue your MF investments through SIPs.
As they say in the investing world, best time to invest in the market is now. You should never try to time the market. Rather you should let your money spend time in the market. Maintaining the proper financial discipline is the key here. So next time when this pops up in your mind if you should invest in stock market now, no matter what, answer would always be yes.
Fun fact: You are not alone who is afraid of losing money. As a matter of fact, this topic is so well researched that this fear actually has a name attached to it. Chrometophobia is not as common as other phobias, like claustrophobia (the fear of crowded spaces) or acrophobia (the fear of heights). However, like other phobias, chrometophobia is an abnormal and irrational fear that carries with it a number of symptoms that vary in severity.
So, do you relate to this idealogy? Let me know in the comments section below or you can hit me up on Facebook, Twitter or Instagram. If you find this article useful, please consider sharing it on social media using the links below.
Until next time. . .