I don’t want to start a MF SIP now as experts claim markets will crash: Am I right?

Published: September 2, 2021 at 10:14 am

In this article, let us address a question received on our Youtube Channel and a question on many investors’ minds: “I’m planning to start my equity investment now (at the age of 26). Now the market seems to be at an all-time high, and most experts are commenting that there will definitely be a crash. This makes me reluctant to start my investment in an index fund (in SIP especially).”

“Any thoughts on this will really help! Can we follow some strategy for SIP Investment to mitigate this (something like increasing the SIP investment value on dips)? I understand that this makes this passive investment to be active, but “money deserves respect”, so I’m ready to spend a couple of hours a month to make this decision?”

First of all,  since you have taken my refrain “our money deserves respect (even if we don’t)” to heart, you should immediately stop following, listening, reading about what these experts say on the media.

What HDFC MF supremo Prashant Jain said a while ago is apt here (with some paraphrasing): We should never forget that we need two parties to survive in the market. Someone to sell when we want to buy and someone to buy when we want to sell. So there will always be two extreme views on the same security simultaneously: It is a good buy, and it is a good sell.

Similarly, on any given day, regardless of the market level, there will be someone who says the bull run is going to end soon and someone who says the bull run has a lot more steam left in it. We will never know who is right in real-time before we invest. We would know only in hindsight. 


Like I mentioned recently – Why should I invest in equity mutual funds when there is no guarantee of returns? – you cannot expect to participate in the stock market by waiting for the time to invest. It does not exist. This would be like a boxer waiting for the right time to train so that he does not get hit.

We fear all-time highs because we fear regret. What if the market starts to fall after we invest? Experience has taught me this: the market is not falling because you have not started investing. It will fall after you start.

At age 26, you should be investing as much as possible each month in a portfolio of 50-60% equity. It would be a criminal waste of youth not to do so.  So please start your SIP today.

The second part of your question: Risk mitigation is important after you start investing in equity. However, buying more on dips has nothing to do with risk mitigation. It is a childish activity in the hope of making more money.

An open-minded backtest would reveal buying on dips does not result in higher returns or lower risk. It would not be an exaggeration to state that we have backtested the living daylights out of common timing methods. Here is a selection on dip buying:

The complete tactical asset allocation archive is also available.

It is quite easy to develop a market timing model (say, based on PE, PB, DMA, EMA etc.), but most of these reduce portfolio risk most of the time. Higher returns are pretty much a coin toss – sometimes they do and sometimes not (see archives).

There are momentum strategies (guaranteed higher risk; potential higher reward): (1) Is this a good time to buy gold? A tactical buying strategy for gold (2) This “buy high, sell low” market timing strategy surprisingly works! (3) Do not use SIPs for Small Cap Mutual Funds: Try this instead! (4) Can we get better returns by timing entry & exit from gilt mutual funds?

But no strategy will work all the time! The sequence of returns puzzle cannot be cracked in a fool-proof way. This is also true for systematic investing.

  • Systematic investing (incl goal-based investing) will not work all the time.
  • Tactical investing (to reduce risk or enhance reward) will not work all the time.
  • Dip buying will not work all the time.

Nothing will work all the time. You need to take a leap of faith, choose one method, jump in, and learn to swim in real-time. If something goes wrong (and it will), we must learn from our mistakes and move on.

Yes, we must respect our money, but we need to respect our time much more. So a simple goal-based approach with a proper asset allocation and pre-defined equity reduction plan or, in other words, systematic risk reduction coupled with systematic investing is the best way to respect my time and money optimally.

All this requires is 30 minutes a year of portfolio review and rebalancing. Sure, this (like any other strategy) has no guarantee of success, but it allows me the time and space to keep a cool head if course corrections are required.

At 26, I would suggest you optimise your money management by setting it in auto-pilot and optimise your time to increase your income. Those who wish to get started the right way can begin here: Basics of portfolio construction: A guide for beginners.

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