Dear new investor this is the best time for you to invest in equity

If you have started investing in equity mutual funds and/or stocks in the last few years and if your financial needs are far, far away, this is the best time to invest in equity. You don’t need to be an expert or genius to recognise that the markets are going to move up and down aimlessly at least until the Lok Sabha elections. It could of course also crash, but that should not be relevant for new investors.

Missed previous posts? You can catch up with these links

I believe a sideways market opportunity such as this one (one could argue with the benefit of hindsight that the window opened months ago) is the best time to invest in equity. To accumulate stock and mutual fund units as much as possible but within a planned asset allocation. Sooner or later, the market will move up and it will change your life. Yes, that is me being hopeful!. Hope is the fuel on which the best-laid plans run.

We are all victims of our experiences and so am I. Again with the benefit of hindsight, I consider myself lucky to have started my journey with equity mutual funds when the markets were crashing in 2008 and this gave me no returns for the next five years. However, I was (quite unaware of anything happening around me) investing like crazy. Around the time Na Mo was announced as the PM candidate the market started moving (coincidence) and I had to rub my eyes in disbelief to see my gains. My daily profit was equal to my monthly investment amount. See the chart below.

10Y portfolio loss - Ten Years of Mutual Fund Investing: My Journey and lessons learned

This is the year on year increase in my investment. Notice that by sheer luck, the huge increase in investment coincided with the sideways movement in the portfolio.

best time to invest in equity is when there is a sideways market

You can read more about what the chart means and about Ten Years of Mutual Fund Investing: My Journey and lessons learned

Want to plot graphs like these with your portfolio? Then use this: Mutual Fund Portfolio Growth Visualizer With Index Benchmarking

So, the above chart is why I believe a sideways market is the best time to invest in equity, particularly for new investors who do not need the money for years to come. Kindly note: I am not asking you to invest more because I expect the markets to crash (I don’t know).

I am asking you to invest because one of the best ways to time the market is to stay invested at all times so that you do not miss any ups (or downs)

Am I not trying to predict the markets by saying it is expected to move sideways? Yes, but I am not pinning my hopes on it. I am not asking you to wait with money on the sidelines. I am asking you to invest regularly and more if possible! From time to time, I am allowed a reasonable and harmless guess, am I not? If the market crashes from tomorrow, you can still invest. If the market zooms from tomorrow, you can still invest.

My single point is: It is one thing to start investing in equity when the markets are moving up, but quite another to invest and invest a lot in equity (or any market) when it is moving nowhere. The former will give you good returns and latter (with luck) can change your life.

I also believe we now have a decent chance of a sideways market. A new government will take charge in summer next year and unlike 2014, it could be a close race. Oil prices are moving up. The Rupee is weak. Interest rates have moved up. News about bad governance and defaults are sprouting up. All these are unlikely to push the market up for some time to come. Therefore is a great window of opportunity for new investors.

What does “To accumulate stock and mutual fund units as much as possible but within a planned asset allocation” mean?

Many new investors start small with equity (as did I). For example, an EPF contribution of say 6000 and an equity SIP of Rs. 2000. I would recommend that you download the Freefincal Robo Advisory Software Template and find out how much you invest for your financial goal and where.

Asset allocation is determining how much to invest in equity and how much to invest in fixed income (EPF/PPF/debt mutual funds etc). Typically for goals that are several years away (10+), you can start with an initial allocation of 60% in equity and 40% fixed income.

This means two things: Your equity holding value should be close to 60% and once this is the case, the amount you invest in equity each month should be close to 60%. IF this is the case, do nothing. Do not invest more in equity.

If your equity exposure is far less than your fixed income exposure, then is a good time to correct it. Increase equity investments each month until you hit your desired asset allocation. It is best to invest manually each month as it gives you complete freedom, but if you have a SIP running, you can add more to the same fund in the same folio on your own each month.

What about older investors? What about them? By now, they ought to have had an asset allocation in place. If not, they should first review their goals and draw out a proper plan and then invest as per that. If they cannot come with a plan, consult one of the SEBI registered fee-only advisors from my list.

If older investors are worried about the upcoming uncertain times, they can consult: Lok Sabha Elections 2019: Worried about how markets will react? Here is a way out

My plans

As pointed out in my yearly portfolio audits, both my long-term goals: financial freedom and my sons’ education/marriage are managed separately with about 60% equity in each.

For my son (he is 8+), I have ensured that there is enough money for a decent PG+UG (current prices) in debt. With ten years to go for school graduation, I am inclined to hold on to the 60% equity.

The financial freedom goal is tricky. I have hit my target corpus but that depends on the 60% equity exposure. If there is a huge crash, I will no longer be financially independent anymore, but again since I love my job, I am willing to take that chance.

If you listen to my financial freedom podcasts (part 1, part 2, part 3) where I talk about how to create a financial freedom plan from start to finish, you would notice the number 30X. This is having a retirement corpus of at least 30 times annual expenses (= X). Do the fixed income corpus would be about 14-15X. My goal is to increase this over time to say 20+. In other words, I would like to try and maintain this 60% equity exposure for as long as I can.

Goal planning is often a play it by the ear task. We plan conservatively but change course as needed (never abandoning safety). Holding on to the 60% exposure is quite risky, but cannot get rich without taking calculated risks!

Don’t forget to read previous posts!

So what are your plans? Leave a comment below. Do not include hyperlinks.

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7 thoughts on “Dear new investor this is the best time for you to invest in equity

  1. Prof Pattabiraman
    It is one of the best pieces coming from your blog. One question. Can PF and PPF both be considered as debt? But there is a limit to both options. Are short term bonds good for long term as their last one performance is not understood by many. Thanks.

  2. Sir
    In this chart nifty next 50 gain more than your portfolio? If it is right than what is message for imvrstors

  3. Your post is great and an eye-opener for anyone who is not sure whether to invest in equity. It is good to understand that this investment cannot be treated as an emergency fund since it is more of a long-term thing.

  4. Thank you for sharing this information. It will really help a lot to persons who literally have no idea where to invest or not?

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