I started my investing journey last year by investing in mutual funds and stocks after talking to friends and reading online. I kept adding more money to funds and stocks as the market went up and I was excited by the great returns. But the recent drop has completely shaken me and my portfolio has also gone from high to quite right. The initial enthusiasm for investing and earning returns has been replaced by fear and noise about interest rates, massive corrections from here, back to FDs and so on. Despite getting bonus and appraised salary, I have stopped investing. To add to this, I am also seriously considering selling my current holdings. What should I do?
– Krishna
(This question was answered by Tarun Birani, Founder and CEO, TBNG Capital Advisors.)
You are displaying the classic herd mentality where you are investing only based on how the market moves. While we should appreciate your willingness and initiative to invest at a young age, you must be equally disciplined to invest during both bull markets and bear markets.
Long term strength: Markets and economies generally operate in different cycles and thus whenever we want to invest, we should have a minimum holding period of 5-7 years. This will help him navigate the various cycles and he will be able to build a large and chunky corpus with good growth in the portfolio.
Creating a Financial Plan: There is a famous saying, “The market can remain irrational longer than you can remain solvent. If you are considering withdrawing money because you need them for emergency/household expenses, panic and To start investing first, you should define your financial goals, investable surplus, emergency expenses etc.
Knowledge Building and Research: Continuous knowledge building and research about various funds/stocks and markets will lead to a great learning journey for you. While there is always noise, consistent knowledge building practice along with gaining real experience by investing in individual funds will make you a better investor. Eventually, you’ll learn to separate knowledge from noise and navigate similar situations more calmly in the future.
Cost Averaging: Whenever we see e-commerce websites announcing sales, we get excited to buy our favorite items at great discounts.
During the correction, the stocks/funds retain their fundamental thesis and growth levers and are still available at discounted valuations. This is the right time to shop but our behavioral biases come in the way. An automatic SIP is an effective option to manage that bias.
If the fundamental thesis of the funds and stocks you are investing in remains intact, then you should consider increasing your investments further after considering the other points mentioned in order to get a lower average cost. Investing is always easy, but never easy. Management of behavior is extremely important and beneficial.
(Send questions and ideas to mintmoney@livemint.com)
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