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When should I switch from equity to debt?

Dhirendra Kumar talks about the ideal time to shift from equity to debt investment

When should I switch from equity to debt?

During mass events like the spread of Swine-flu, Brexit, etc, should an investor top up in funds that fall more during these times or that fall less? Also, for an investor with a time horizon of 10-12 years, when should he/she switch from equity to debt so that his/her equity allocation reduces and he/she is more confident of the future?
- Gaurav

My answer to your first question might amaze you but I would say that do not do anything. If you are following a plan wherein you are investing your long-term money in equity, then you are naturally buying cheap. Now if you try to benefit from it (for which there isn't a precise formula) and even if you are able to benefit from it, you will get false confidence. This confidence will make you take such actions time and again, which might lead to repeating mistakes, thereby distorting your plan.

Your second question is quite important. We invest our long-term money regularly but when we need it, we must start preparing for it at least two years before the completion of the goal. It should be calibrated and measured preparation since only you - the investor - know the nitty-gritty of the goal. For example, if you are going to retire and won't be receiving any pension, then you will have to use your investments to derive income in retirement. In such a case, move at least your three-year income requirement in fixed income so that your income requirement is not dependent on market movements. This will help control any anxiety during market volatility. With the remaining money, define and develop an asset allocation on it and periodically rebalance the same. Rebalancing to restore to your original asset allocation whenever required helps in following a formula, which may reduce the chances of making the kind of mistakes I was referring to while answering your first question.

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