Falling Sensex or Nifty
STOP SIP – The most common mistake, an investor makes in a falling market, is to first get into a panic-state, and second, stop the monthly SIP. Whereas one tends to forget the basic premise on which the SIP is built, i.e. “Law of Averages”, where in a falling market, SIP is helping you to pick mutual funds at a lower rate, and thus helps you to earn more in the future years.
DIVERSIFY PORTFOLIO – Another mistake, on account of falling market, where one gets to hear on stocks or mutual funds available at a low price, making one believe that it’s time to go “Bottom Fishing”. This leads to stretching the size of portfolio, from few selected stocks/ funds to many stocks/ funds now, resulting in an average return due to the bigger portfolio in-hand.
FINANCIAL PLAN CHANGE – Financial plan, which is based on asset allocation models, takes a beating due to “Knee Jerk Reaction”, as we either stop following plan or altering same, due to falling markets. Whereas we tend to forget that, all our near-term investments are in liquid & debt funds, which are just not affected in the falling market. And all our medium to long-term investments (mostly equity) are safe, since its maturity is many years away.
BUYING MORE TO AVERAGE – We see it as a fantastic opportunity to accumulate more. But we tend to forget again, that this may result in cash-flow mismatch & affecting the overall financial plan. This makes sense only if we are sitting on ideal liquid (or debt) funds, else answer is NO. One needs to let your financial plan work & decide the future course.
At time of UNCERTAINTY; i.e. the falling market, the SAFEST bet is to SPEAK to your ADVISOR.