Markets Near All-Time High; What Should You Do?

On January 12, markets edged higher and gained nearly a percent, continuing the prevailing up-move. Upbeat global cues led to a firm start. The Nifty index settled closer to the upper band of the range to close at 18,207 and the Sensex at 61,150 levels. So, what should one do with their investments? Is there a way to navigate when the market is climbing? Here are the answers to these and other questions. 

Price Is An Illusion 

The Sensex is an index that derives its value from the price of 30 stocks (reclassified periodically) listed on BSE. As the prices of those 30 stocks change, the value of Sensex changes accordingly. So, what seems expensive today may seem reasonable tomorrow. For example, when Sensex touched 30,000 for the first time in 2017, many people at that time deemed it expensive. But look at 2022; Sensex is over 61,000. Will the same people think Sensex to be expensive now? They probably will. The price by itself is not expensive or cheap; that is determined by the perspective of investors. So, do not base your investments on whether the market is expensive or cheap; invest regardless.  

“Investments are done with a wealth creation point of view. If one has invested as per their needs and has a long-term horizon, they could keep the investments intact. They should also continue their SIPs (systematic investment plans). Over time, when the markets go up, they will create wealth,” says Suresh Sadagopan, a Sebi-registered investment advisor, and founder, Ladder7 Financial Advisories, a financial planning firm. 

Do Not Try To Time The Market 

Stock markets move based on a multitude of factors and no single person has been able to accurately say what’s going to happen in the markets today or tomorrow. If you keep waiting for the right moment for the markets to cool down or gather momentum and then invest or withdraw, you will never be able to find a perfect opportunity. Raj Kumar Das, who works with an IT major, invests with a long-term investment timeframe. “I do not buy or sell my investments based on market highs and lows,” he says. 

Equity markets are volatile and prices move rapidly. There have been several instances when the markets were subdued for the better part of the year, giving only minimal returns, only to suddenly picked up pace in a few days and gave huge returns.  

So, invest in the market and stay invested to capture these sudden trends. “If some investors’ portfolios are giving over 20 per cent annualised returns, they should consider booking a profit and moving part of their portfolio towards conservative investments. Mutual fund SIPs must be continued,” says Ajay Sharma, founder and chief investment officer of InvestmentMitra, a mutual fund advisory firm.  

Sanjay Das, a Masters’ student of Calcutta University has recently turned an equity investor. “I have been investing regularly for the past six months. I am optimistic about equity mutual funds, so I will remain invested in them,” he says. 

Re-Balance Your Portfolio 

When market indices such as Sensex, Nifty 50, etc., are at such high levels, it might be a good idea to check whether the mutual fund schemes you are invested in and those that have these indices as their benchmark, are giving similar returns or not. If they are lagging their benchmark index, then consult with a financial advisor and try to rebalance your portfolio.  

However, if you have invested in a passive index fund, then look for its tracking error value to see whether the returns are in line with the acceptable deviation or not. 

Rebalancing your portfolio does not necessarily mean that you top up your portfolio and invest a lump sum amount whenever the markets are down. It means you are sticking to your financial goals and if the fund where you invested is going in a different direction from your goals, only then should you switch. 

Keep Your Emotions In Check 

There might be some investments that gave you good returns in the past and so you stuck with them. However, if you notice that they are consistently lagging their peers, it may be time to exit; do not get emotionally attached to them. Try to get out those investments in a tax-efficient manner and switch to better investments within your risk profile. For example, a fund manager may be taking contrarian conviction bets, which other funds may not be taking. So, the returns of this fund will differ. Try to do more research and if you agree with the contrarian bets, then stay invested. Otherwise, switch to other investments. 

“Investors must review the individual investment in the portfolio and change from those whose performance is not likely to improve in future. To earn a profit, one must learn to take losses and move to investments that are likely to do better in future,” says Sharma. 

Stick To Your Risk Tolerance Level

All mutual funds undertake certain risks to generate returns and are labelled accordingly. Read the risk indicators and try to take a risk tolerance test. Invest according to your risk profile. Don’t invest in a product that doesn’t match your risk profile just because of the potential of higher returns. The riskier product, which might be creating wealth for you today, may also destroy your wealth tomorrow. Speak with your financial advisor and allocate assets based on your risk-taking ability. Do not take a concentrated exposure with only one asset class.