A reader on our Youtube Q & A session asked, “Sir, my question is as follows: My age is 25 years. I have started sips in MFs since Oct 2021. I don’t have time to analyse stocks ( i have a 13-14 hrs job). I am now sitting on a significant loss. My corpus goal: 2 Cr after tax. Time period to achieve: 20 years”.
“My portfolio:
1. Parag Parikh Flexi Cap fund: Rs. 2500
2. Axis Mid cap Fund: Rs. 2500
3. Canara robeco tax saver : Rs. 5000
4. Mirae Asset tax saver Fund: Rs. 5000
Am I on the right path. Please give some suggestions if I am not”.
Almost everybody who started equity investing in Oct 2021 would be facing losses now. So you are not alone. There are three phases of equity investing. (1) The joy of a bull market; (2) The despair or at least the uncertainty of a market crash and (3) the frustration of a directionless market.
All three phases are good times to start investing in equity and continue investing. No phase lasts forever, and no one knows which phase will be the next unless we use the benefit of hindsight. Many young earners started their mutual fund investment journey encouraged by the bull run after the March 2020 crash and assumed it would never end. It has ended, and the consequences are there to see in our portfolios.
This is a necessary and unavoidable pain that everyone (no matter how experienced they are in the capital markets) must undergo until a bull run treats that pain. There is no other practical choice! That is why we keep saying everyone is timing the market – waiting for that good time.
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The more you invest during a painful phase, the more wealth you create when the tide turns. This is the simple secret behind equity investing.
As long as your needs are far, far away (20Y is just that), you can afford to wait and must wait. Such bad times remind us of the importance of asset allocation. We recommend using a 50% equity and 50% fixed income (EPF, PPF etc.) portfolio so that the bad times in equity are reasonable to bear. Always look at the overall portfolio first and then drill down to asset classes (equity; fixed income) and individual funds or stocks.
As regards your funds, please continue investing in them. There is no need to add or remove any funds at this stage.
There are three aspects to creating wealth from the stock markets: Investment, time and returns. Among these, only the first two are in your hands. You have already scored big on the time aspect by starting early. Now focus on increasing your income and, therefore, your investments as much as possible.
There is no evidence that being patient and investing systematically will reap rewards, but the only other choice is guaranteed failure to beat inflation with fixed income. There is no need to despair, though. Systematic risk management constantly keeping our future needs in mind gives us more than a reasonable chance of success. See: Why should I invest in equity mutual funds when there is no guarantee of returns?
Continue investing in a 50:50 asset allocation (you can also choose 60% equity if you are up to it) for the next few years. Learn more about portfolio rebalancing and how to manage your goals in a goal-based way. This webinar may help you get started: Basics of portfolio construction: A guide for beginners.
The above holds true only for long term goals. If your needs are 3Y away or 5Y away, we recommend exiting from all or most of your equity holdings regardless of current market conditions.
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Dr 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.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 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 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.
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