Let’s accept for a fact that markets rise as well as fall. On a sufficient long term basis, they tend to rise.
I have shared enough charts in previous posts about this phenomenon. But for some reason the fear keeps coming back to bother you.
When markets run high, emotions run high too. We feel confused about what to do. Some investors run around like plucked chicken.
In times such as these, rationality is difficult to expect. In fact, it seems that rationality doesn’t exist.
But there are ways in which you can work to control this hyperactivity in your mind. One such is a checklist.
A checklist can come in handy to enable us to overcome our emotions and get back in control, at least some control.
So, here’s a quick checklist to help you see through the emotions and focus on what’s important.
5 questions to ask in the rising markets
Go through each of your investment with reference to the following questions.
- When do I need the money?
- Did I make this investment for 1 year, 3 year, 5 year, 10 year, 30 years?
- Does my investment time horizon match the “when do I need the money”? (For reference, see a later section below)
- If the market crashes, can I sit through another few years to get back to current value?
- Does the current growth in portfolio change my asset allocation outside my defined band? (If yes, reallocate; If no, wait)
The reference for your time horizon, risk profile and investment type is give below.
Mapping your time horizon to type of investment
- Need money within 3 years – Only fixed income
- Need money in 3 to 5 years – Predominantly fixed income
- Need money in 5 to 10 years – Balance of fixed income and equity
- Need money after 10 years – Predominantly equity
Mapping your risk profile to asset allocation
Risk is the tolerance to losing capital and to be able to withstand the see saws in market linked investments.
- Conservative – Upto 40% in equity
- Moderate – Upto 60% in equity
- Aggressive – Upto 80% in equity
How do you find out your risk tolerance?
There are several tools on the internet. We have a simple one on Unovest. Login to your account and take the quick risk profiling questionnaire. It is a set of 5 questions which helps you understand your likely risk tolerance as of today.
If you don’t have an account, you can create a free one today.
Remember risk tolerance can change with portfolio value and experience.
You cannot predicThe bottomline is keep everything aside and focus on asset allocation.
So, do tell us if you have been to use this questionnaire. Did it benefit?
Have more questions about what to do in rising markets? Ask now in the comments.
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