Rajat Saxena has been investing in equity through SIPs since the start of the century, when he started working at his first job as an associate. He started with humble amounts and transitioned to investing a large part primarily for his retirement home and income. Though he had experienced the global financial crisis of 2007-08, wherein he rode the roller coaster of the first major fall and a subsequent rise in his investments, the amount that he had accumulated at that time was not so significant. So, he didn't worry much.
After two decades into his career, he now owns an architecture consultancy firm. His income and savings grown manifold and his equity investments now constitute a significant portion of his life's hard work and net worth. The crash earlier this year made him sweat bullets at one point, when he saw a corpus of more than Rs 3 crore get eroded by close to 30-35 per cent. Fortunately, he didn't act in haste during the crash and since then has recouped the losses. He now wants to make sure that he doesn't suffer this fate during the next market fall, especially with experts predicting a market correction in the near term.
Rajat's equity investment has been handled by a well-known wealth-management firm for close to a decade now. Seeing him get rattled during the market fall, his relationship manager, Mr Mazumdar, suggested that he should take close to a third of the money out of the market and reinvest through SIPs for the next two-three years. He opined that this would help him take advantage of any correction that might happen during the period and at the same time stay invested in case the market rally continues. Rajat does not wish to take any chances with his life's savings and decides to follow this advice.
What to do?
Mr Mazumdar's suggestion seems reasonably good for Rajat's anxiety and is better than something which might have led him to take some irrational decision. However, what longtime investors like Rajat must realise is that doing so is mere activity. It will not meaningfully contribute to their returns. Since his investment is meant largely to take care of his home and income during retirement, Rajat still has close to a decade or more of his working life ahead of him. Such a long period should be enough to recover from any short-term market swings that he is expecting at the moment.
So long-time investors, like Rajat, would do well by simply sticking to their SIPs and ignoring the intermittent market volatility. However, if they can't handle their anxiety, they can very well go ahead with what Mr Mazumdar recommended. At least that would ensure their peace of mind and prevent them from making any worse decisions.
This article was originally published on October 26, 2020.
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