Testing Times: This phrase barely scratches the surface when describing the global tumult of the last few years. Who could have predicted that a virus would evolve into conflicts, one after another?
I'm sure we're all concerned about what's happening out there in the world.
As we contemplate the shifting possibilities of the future, other questions arise:
1 - In this market mayhem, should I buy or sell?
This is indeed the big question.
Although it might feel like the sky is falling, the reality is less dramatic. The Nifty 50 has only corrected by about 10% from its peak, which is fairly typical in any given year.
I believe the panic stems from the base change; a 10% drop from 5000 is 500 points, but from 26200, it's 2620 points.
If we let our emotions take control, we'd sell everything and run, but that's not our strategy.
There is a logical approach here. Let's revisit our simple indicator/model for guidance.
The model suggests that this is not the time to sell but buy, assuming you are investing for at least 5 years. That's your answer.
2 - Should I Invest via SIP/STP or do a lumpsum?
Again, let's consult the model. For now, SIP or Systematic Investments seem to be the better strategy.
While short-term opportunities appear more attractive, significant uncertainty persists.
Lump sum investments are best suited for a "RISK ON" mode, which is the bottommost part (<25% score) of our model.
The asset allocation model's marked zones clearly outline actions for various market scenarios. Keep an eye on the indicator; it's updated monthly.
3 - Do I rebalance the portfolio?
Always assess your portfolio and its allocations before you make a decision to buy or sell.
Use the opportunity to adjust your allocations which is also a form of portfolio rebalancing.
To answer directly: Yes, if your portfolio has strayed beyond the defined tolerance zones, rebalance it.
We can't predict the future or the challenges we'll face on our journey toward financial goals. A sensible asset allocation strategy coupled with periodic rebalancing is likely to yield the best outcomes.
Remember to maintain your emergency funds portfolio (at least 6 months of expenses + EMIs, ideal 12 months)
Hope these reminders help calm your mind. If you have any other questions, please feel free to ask. I will be happy to respond.
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