Chandan is unsure about staying in the stock market. Despite positive news and good economic performance, he’s worried the market has risen too much over the past three years. He invested at a market peak before and doesn’t want to repeat his mistake. Chandan is concerned about high valuations and thinks a big correction might be coming. He believes it might be smart to exit now while others are buying. However, he also worries: what if those buying are right?
Chandan thinks timing the market is crucial for making money. When he invested earlier, everything seemed positive, but then the market crashed. Timing the market perfectly is hard, and often you realize the market has peaked only after it drops. This is why Chandan should follow some simple rules.
Chandan’s decision to invest in stocks should depend on his financial goals. If he has long-term goals and needs protection from inflation, he should invest in the stock market for potential capital gains. While the average return from stocks is high, it doesn’t happen every year. Exiting after three good years might make him miss out on further gains.
Chandan should maintain an asset allocation plan. If his goals require 40% of his investments in stocks, he should stick to that. When he makes a profit, he should reinvest in another asset to maintain this balance. This approach helps him stay invested through market ups and downs and achieve average returns.
Chandan should only leave the stock market if he’s sure it’s not for him. In that case, he needs to invest more in other assets to reach his financial targets, as those returns might be lower. Leaving now and returning after the market rises could hurt his returns. Investing a consistent portion of his savings regularly is a good strategy for investors like Chandan who aren’t market experts.
Content courtesy of the Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava, and Labdhi Mehta.
Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.
