What should investors do when markets hit an all-time high, and we saw five new all-time highs in 2023?
Dwaipayan Bose has some answers.
The markets are at an all time high
The 50-stock bellwether Nifty-50 has been hitting all-time highs. On June 28, 2023 the Nifty-50 hit its new high ever of the year; then again on July 20, 2023; then on September 15, 2023 and then again on December 1, 2023 and ever since then the Nifty-50 has been on an upswing making new all-time highs.
On December 28, the Nifty-50 topped 21,800, yes, a new all-time high for 2023.
Whenever the markets hit new all-time highs there are always investors, who are gripped by fear and uncertainty. They may get tempted to book profits at these levels by redeeming their investments, but market-level-based profit booking is not the right approach for long term investors.
Why you should not redeem when the market is high
Equity as an asset class is volatile; it will have ups and downs. We have seen in the past that the market has fallen from the highs, but it is very difficult to determine beforehand whether the fall is a retracement, that is, a minor pullback from high level or a deep correction (a bear market).
Furthermore, historical data shows that whether the pullback is short term or a bear market, the market always recovers and scales new highs. Therefore, in the interest of long term investors, it is advisable to remain invested.
Remember, records are meant to be broken.
For cricket lovers, one cricket record was considered sacred for several decades: Don Bradman's 29 Test centuries. The record stood for more than 30 years and cricket lovers thought that this record would never be broken.
In 1983, Sunil Gavaskar broke Bradman's record and became the new record holder. Gavaskar's record of 34 Test centuries stood for nearly 20 years till Sachin Tendulkar broke it in 2005.
Can Tendulkar's record of 51 Test centuries be broken? It is an enormous task, but as history shows, records are meant to be broken.
The Market has always made new highs previous levels.
Like cricket records, the stock market has kept beating previous records despite ups and downs.
In 2023, the markets hit record all-time highs on four different occasions and after decent pullbacks recovered to print new all-time highs: On June 28, 2023 the Nifty-50 hit its new high ever; then again on July 20, 2023; then on September 15, 2023 and then again on December 1, 2023 and then yet again a new all-time high on December 28, 2023.
What should investors do when the market is at all time high?
- Invest according to your financial goals and plan. You should remain disciplined in your investment.
- You should focus on asset allocation. In high market, the asset allocation gets skewed towards equity. You should rebalance your asset allocation by investing in fixed income.
- You should continue your SIPs (Systematic Investment Plan). Investing through SIPs makes market timing irrelevant because you will invest at all levels and benefit from rupee cost averaging.
- You can take advantage of market corrections/pullback by tactically investing in lump sum. You should always have long investment horizon (minimum 5 years) for equity funds.
You should always invest according to your risk appetite. You should consult your mutual fund distributor or financial advisor if you need help in understanding your risk appetite and risk profile of your mutual fund scheme.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
