Are you waiting for the market to fall? It can be an expensive mistake!

Published: August 31, 2020 at 12:08 pm

Last Updated on February 12, 2022 at 6:16 pm

Are you delaying your investments waiting for the market to fall again? Here is why waiting for the suitable time to invest in the market can an expensive and irreversible mistake.

When the Nifty crashed by 37% in March 2020, everyone feared the worse and with good reason. We expected a further crash or at least a sideways movement at that level (mid-7000). As usual, the market has a mind of its own and defied all expectations.

The nifty moved up 53% since then and several mutual funds have registered healthy gains: These 10 mutual funds gain more than 75% after the market crash. Those who were waiting for “lower levels” to invest have to deal with rue and regret. We can only hope the regret is over the right reason: money lost in the market can be gained back but time once lost is lost forever.

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The market in an intractable beast and investor assume they can actually slip in between raindrops without getting wet.  Dolly Parton could not have said it better: “if you want the rainbow, you gotta put up with the rain”.

Stock market risk must be actively managed. There is no question about it. However, to assume it can be accomplished by waiting for the right time to invest is unsubstantiated nonsense.  This is like trying to build a sandcastle when the waves have receded assuming it will never come back in strong. Some investors believe they can ‘see’ a big wave and safely relocate the castle.  It is like waiting too long to go on a holiday only to find the world under the grip of a pandemic.

No one knows when the market would fall again or rise again.  There is a simple way for a normal person to profit from the stock market: Have a balanced portfolio to reduce the risk of loss and regularly accumulate mutual fund units or stocks so that when there is a big upswing a significant profit can be made (absolute gain not percentage). If we can stay invested through 2 or 3 bull runs our life will change forever.

All it took was one bull run to change my life:  Lessons learned from my investing journey. The crash reduced my returns but not my financial independence status: My retirement equity MF portfolio return is 2.75% after 12 years!. I have regularly investing throughout this crash and eliminated my losses. See:

Investors can manage risk systematically and build a robust portfolio with three simple actions

(1) decide what asset allocation is necessary for your goal now and in future. The Freefincal Robo Advisory Software Template automates this process of goal-based asset allocation.

(2) Rain or shine. An upmarket or down market, invest regularly – each month if salaried and at least each quarter if you are an entrepreneur. SIP or manual investing does not matter. See: Instead of a mutual fund SIP can I invest on my own each month? Log your investments and increase them as much as possible each year. See What is your investing growth rate?

(3)  Rebalance your portfolio once a year. You can do this is there is a sudden market upturn or you can do it the same month each year. As long as you do it once a year risk will be contained by a significant extent. See:  When should I rebalance my portfolio? Also, see: Forget tax and exit loads, this is why your portfolio should be rebalanced each year.

This is good enough for all investors. In addition, if you wish to tactically enter and exit using technical indicators please recognise that it not for higher returns but for lower risk. See: This “buy high, sell low” market timing strategy surprisingly works!

Thus there are only meaningful ways to invest: (1) invest regularly and manage risk regularly or (2) invest and manage risk tactically. Those who have a tactical method in place will not sit and wait for some Nifty level to invest.

The idea behind both methods is to continue investing no matter what. That is “investing with a system in place”. This is not the same as “systematic investing” as fund houses would have you believe.

Market levels are not relevant to your next investment. Investing “extra” on “dips” is fine as long we do not attach any superiority to it as shown before: Want to time the market? Then do it right! Buying on dips is not timing! and Buying on market dips: How effective is it?

The only way to sleep in peace is the thought that risk associated with our money in the market is reasonably managed. Worrying about when to invest next and what would happen to that investment is of little use.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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