Waiting for the market to fall more can be an expensive mistake!

Here is why waiting for the suitable time to invest in the market can an expensive and irreversible mistake

Published: March 2, 2020 at 12:32 pm

Last Updated on September 1, 2020

We live in a unique time. Given the explosive growth in mutual fund AUM, most capital market participants are relatively new, relatively young with relatively small equity expoure. One of the most expensive investment mistakes for young earners would be to “wait for the right time to invest” or “wait for the market to fall”. Worrying about market volatility betrays the lack of a plan.

In every discussion on portfolio rebalancing, someone says, “why can’t I rebalance the portfolio by adjusting the investment amounts without withdrawing from equity or debt?”. See this statement often enough then the problem with young earners become clear.

Those who have just begun investing in equity focus on the amount they invest each month and not on the amount already invested (which is comparable to the annual investment).

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

    Hence the desire to rebalance without redeeming, hence the fear of a market fall after an investment is made, hence the regret if the market moves up on the day of the SIP or falls the day after.

    Investors with significant assets in equity would have typically got there over at least one decade of investing and such investors tend not to ask questions like, “shall I invest now or wait until it falls more”

    Why? The ” risk of loss” associated with the amount facing the full heat of the market is much more than the money to be invested next. “Time in the market” is a great teacher. It forces you to look at the big picture, focus on protecting the amount invested.

    Waiting for “right time” to invest is like waiting for an opportune time to slip between the raindrops without getting wet. It is a waste of time. As I write this, the Sensex is up 660 points. The stock market is quite literally (technically that is) random with too many variables at work. This randomness can be quantified but not predicted.

    What are the practical options to manage stock market volatility?

    Market volatility management is a crucial part of investing. Assuming market volatility does not matter if you are investing for the long term, as many advisors suggest is ignorance.

    Most advisors assuming 50-70% of equity held for most of a 20-year duration (for example) is enough to achieve a goal. A market crash at any point in time, 1st year or 17th year can destroy a corpus.

    The boring advice of “invest according to a goal, according to an asset allocation” is good only to get started. Risk in an investment portfolio requires continuous (one a year at least) management.

    We invest money only for using it later. So the goal is not merely high returns but an adequate corpus. The two methods of continuous risk management are:

    1. Tactical asset allocation using one or more market indicators. This market timing tool does just that: Find out if the stock market is expensive or cheap in multiple ways. Here the amount of equity allocation would vary depending on market condition. The goal here is to lower portfolio risk not higher than market returns.
    2. Goal-based asset allocation: Here the equity allocation varies as per the needs of the goal (this will vary pre- and post-retirement). These are discussed with necessary backtest proofs in the  lectures on goal-based portfolio management

    The idea behind both methods is to continue investing no matter what. That is “investing with a system in place”. This is not the same as “systematic investing” as fund houses would have you believe.

    Market levels are not relevant to your next investment. Investing “extra” on “dips” is fine as long we do not attach any superiority to it as shown before: Want to time the market? Then do it right! Buying on dips is not timing! and Buying on market dips: How effective is it?

    The only way to sleep in peace is the thought that risk associated with our money in the market is reasonably managed. Worrying about when to invest next and what would happen to that investment is of little use.

    It is perfectly natural to react to market movements. The question is, are we doing that with a plan or not. The more time wasted without a plan and waiting for the perfect time to invest, more time flows under the bridge. Time, unlike money, is more precious as it cannot be recovered.

    Instead of wasting time dreaming about a market crash and recovery (after the investment is done), investors,  especially young earners should focus on investing regularly with a goal. Waiting for the market to do what we want it to is worse than chasing our own tails.

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

    🔥Enjoy massive 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!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • 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!

      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 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 300 (instant download)