Dhirendra Kumar explains what to do in case of a market crash
19-Aug-2021
Click here to watch the video
I started investing in equity funds through SIP three years back. Should I worry about the market crash and move to a debt fund, or should I use this as an opportunity to invest more if the market crashes?
- Sagar Chapale
Firstly, worrying won't help. If you were worrying about it a year ago, you would have moved out from equity to fixed income. Because, for the last 18 months or so, everybody has been worrying about it. Everybody is surprised about the reasons for the market going up, but the market has kept going up. The people who feared and acted have missed one of the special opportunities provided by equity in a long period and a very unexpected manner. So you can worry, but it won't help.
Two things will help you. One is to stay put if you are not going to need this money for the next 10-15 years. Worrying about it won't help in any way because you have been investing in equity for the last three years only. Your accumulation is yet to happen. Carry on with your plan, and don't worry. There will be a crash, but how does it matter? Because it is very difficult to time it. It is possible to miss it if you try to time it, just like one would have missed in the last year. Because the current situation can carry on for the next six months, or it may continue to be like this for another two years. In case there is a crash, you don't know when it will bounce back. Will it last for just a month, as it happened in March 2020? So worrying about it will only drive you to take baseless action.
I think what you should worry about is the things that you can manage. You know very well how long this money is not required. You know how long you will continue to invest. Based on that, you should devise some kind of methodical formula for dealing with such situations. You have been investing for the last three years, and I am assuming the investment accumulated is not very substantial so far, as it is the early years of the accumulation phase of your life. So once it becomes something meaningful after you have done it for ten years, devise an asset allocation plan.
For example, you could always decide to have 25 per cent allocation to fixed income. Anytime this allocation of 25 per cent goes out of whack by 5 per cent, suppose it becomes 20 per cent at any point, you will move a small part of your money from equity to fixed income and vice versa. So you will rebalance it as per your decided upon asset-allocation strategy. But till that time, you should let it accumulate and do nothing.
Pat Dorsey's secrets to investing success
How Sushmita selected her first mutual fund
Bill Ackman's guide to investing
Does compounding work in mutual funds?
Back
