Can I invest surplus cash in equity or rebalance my portfolio now or wait?

What you need to consider before rebalancing your portfolio or investing extra cash into the stock market now

Can I invest surplus cash in equity or rebalance my portfolio now or wait

Published: March 25, 2020 at 8:03 am

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Wondering if this is the right time to deploy the surplus cash in your hands into the stock market? Worried about catching a “falling knife”? Is this the right time to rebalance your portfolio? A discussion.

The market (= Sensex) has dropped by about 31% in 22 days, 10-year, 14-year SIP returns from the Nifty are lower than an SB  account or FD! The govt has yet to come up with a concrete economic package. A weak rupee and sell-off in the debt market leaving liquid funds down: Why Liquid funds and money market funds also fell in the last few days would make it difficult to announce a rate cut.

An already weak banking system may find the going tough if EMIs are given an extension of even a month.  As for that dreaded curve that should flatten, we have just gotten started with what can only be termed as an extraordinary 21 days to follow.

Although no one can predict future market movements, it does not take a genius to put together that market volatility would persist for a few more days. Under such circumstances with AMCs working on skeletal staff and broking servers under strain, it would not be wise to make unnecessary electronic transactions.

Also, with the strain of a deep red portfolio, it might cause more aggravation and stress to see the market drop further down after the investment is madeAssuming the market could fall up to 40-45% before recovery, surplus cash can be put in even after a 5-10% recovery and even on non-business days (in the case of MFs, when server load is low)

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Surplus cash here refers to cash earmarked to equity investment in addition to the emergency fund. If you fear job loss or additional expenses in the coming months then it would be better to leave much of that cash as-is.

Even if the market recovers closed to Jan 2020 levels, an already imminent recession is likely to fester on for some time to come. So there is likely to be plenty of opportunities for surplus cash deployment.

Rebalancing from an already existing fixed income portfolio to equity can also wait a bit or can be done gradually. However, care should be taken not to reduce the fixed income components. Therefore a partial rebalance might aid sleeping better.

For example, say your equity portfolio has reduced from 70% to 55% in the past few days (for a long-term goal decades away), you can either shift 15% from fixed income and put it into equity or shift only 10% or 5% as per your newly discovered risk appetite. Do not worry for now how it will impact your future corpus. In these troubled times, we leave that be for a while.

In conclusion, whether you wish to invest surplus cash or rebalance, go slow. There is no rush. You can top up your SIPs (manually is enough) by 10% or 15% if it will not affect your cash flow needs in the future.

You may have heard the expression, make your money work hard, then do so. Why rush to its aid like an overprotective parent each time the market falls? It fell down on its own, let it get up on its own. You can invest more but there is no rush and it can be done independently of the fall.

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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5 Comments

  1. I am actually looking to move some of my liquid funds into equity now (retaining a decent sized emergency fund in FD/liquid funds) to increase equity allocation in the portfolio (I was at only 25% equity which has obviously gone down further and I dont have any upcoming expenses in the next few years). However I don’t like to pick stocks and was looking to invest in the Nifty ETFs, however there is a huge delta these days between NAVs and Market prices (much higher) of these for the last few days. Wheat are the other options I have?

  2. There’s a sweet whiff of a mature parent in this article, both logically and psycho-logically 😉 While there’s ample I’ve learnt about finance on this blog, I’m not sure if the author is aware of these subtle life lessons he manages to pour out every once in a while, through his writing. A modern day Richard Feynmann that manages to iron out (perceived) complexities and presents them in simple, easy-to-chew-on balls of wisdom. Thanks Professor. The charts could read Red but those who have and stick to a plan, could let the child get up on it’s own, without losing their sleep over it.

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