I have stopped my equity MF investments due to the global recession: Am I wrong?

Published: September 30, 2022 at 6:00 am

A reader aged 35 asks, “I have stopped all my equity MF investments due to the global recession and poor returns over the last few months. However, reading your articles, I am now in two minds. Can you please advise what I should do?”

The market zoomed up after the March 2020 crash much more than it fell. These over-reactions on either side are expected as a herd mentality governs the market in the short-term (next few years).

The grim consequences of the global lockdown are sinking in, and the market has lost steam. So at the very least, we should expect a sideways market for the next year or the next couple of years.

So does this mean we should stop our investments in equity and hold cash? No! On the contrary, this is the best time to invest and invest as much as possible  provided:

  • you don’t need the money for at least ten years or more (not more than 50-60% equity, though).
  • For shorter needs, reduce equity allocation to below 40% and gradually reduce it.
  • You have a strong cash base to tide over any difficulties due to job loss, inflation etc. This is not part of your emergency stash and can be anything from 1-3 years of annual expenses. If you are nursing EMIs, add 1-3 months’ worth of EMIs too!  If you do not have this ready, try to accumulate this as quickly as you can without stopping equity investments (if possible). You can reduce the investment for a few months while accumulating this fortification.

Why is this the best time to invest? The secret behind successful stock market investing is to start early and keep investing. When the bumper returns arrive, your life could change. Mine did: Fourteen Years of Mutual Fund Investing: My Journey and lessons learned. Accumulate as much market-linked capital as possible to benefit from an upswing.


🔥Enjoy massive year-end discounts on our courses and robo-advisory tool! 🔥
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!

Equity investing is like climbing an unknown, uneven staircase. We do not know how wide each step is, and we do not know when we will see the next step (ignoring the potholes within each step).  This can be illustrated with a log graph of the Sensex. See Sensex at 50,000 – lessons from the 42-year journey, and Are you ready to climb the Sensex Staircase?!

Sensex in log scale with bull markets and sideways markets depicted in red
Sensex in log scale with bull markets and sideways markets depicted in red

So the stock market is like a mercurial batsman (e.g. Sehwag). It can explode to provide magical life-changing returns (e.g. from 2003 to 2008; 2020-2022) or can go through a slump for years (the Sensex was flat for ten years after the Harshad Mehta scam

Many people believe such a thing will never happen again in India as it is now economically stronger. A majority govt is also a key driver of stock market gains. So if there is a hung assembly, the return over the next few years can be quite poor. In other words, there are no guarantees, and the future is unknown. See: the stock market always moves up in the long term, but returns move up and down!

So everyone is waiting for such a return in one way or another, and everyone is timing the market! See: Why “time in the market: is not different from “timing the market”!

However, there is a difference between waiting with hope and waiting with a plan independent. This is where goal-based investing and risk management makes the difference.

  • Invest like a machine every month, regardless of market conditions, in a well-balanced portfolio.
  • Plan on reducing equity allocation in a step-wise manner well before your deadline.
  • Rebalance your portfolio as per this plan like a machine, regardless of market conditions.
  • Stick to your planned investment schedule – e.g. increasing investments by 10% a year. Invest more if possible!
  • You should know a reasonable estimate of your target corpus at any point.
  • You should know the value of your accumulated corpus. How much is it worth relative to the target corpus? Focusing on this is much more important than portfolio returns.

In summary, do not stop your investments for long term goals. Instead of spending time on doomsday predictions, create a robust goal-based financial plan; implement it; stick to it. Bear the pain and invest in equity through loss, or you will never change your lifestyle!

Do share this article with your friends using the buttons below.

🔥Enjoy massive year-end discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or 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 for promoting unbiased, commission-free investment advice.
  Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)