How to deal with a rising market and position your portfolio

Jitendra PS Solanki

If you have not invested in equity until now then probably you would be disappointed with the missed opportunity. It has to be the case, since this one asset class helps you in generating long-term wealth beating inflation. But this is also a known fact that most investors enter equities when they see it rising. Many commit mistakes of making a wrong choice because in growing markets even the worst investments can be seen giving good returns.

Equity markets need much more attention than just clicking the button to complete the transaction. Choosing of the right option and with your risk appetite is a key to create wealth. For retail investors investing without worrying about the market levels may be a good strategy. But this is easier said than done when emotions rule investing decisions. For investors who are enjoying this upside dilemma comes in with their existing investments. Should they redeem their investment or book profits or continue.

Here are few points on what should an investor do and what needs to look at when equity markets are rising:

1. Avoid going with herd

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Investment Adviser & CFP|JS Financial Advisors

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There is overflow of information as everyone is discussing enjoying the returns. When you look at this news it’s difficult to curb your excitement. The returns look amazing and everyone around you is gaining from it then why you should be left behind. So you too decide to enter in equity markets but with all your money. This is where you commit mistakes. Yes, equity markets investment is needed but you need a strategy which is aligned with your risk profile. So avoid going with the crowd and chart your own roadmap.

2. Get rid of those bad investments

While it may be true that if equity markets have gone up so should be your investment portfolio. But it may not be the situation if you have some bad stocks or schemes in your equity portfolio. Sometimes investors have too many which actually drag the performance of your entire portfolio even when markets are doing well. This rise then is an opportunity to get rid of bad investment decisions you made earlier. If the stock or scheme is not able deliver in a rise then you can’t expect any result from it. Find out the real reason of under-performance and if there is less probability of its recovery then remove them from your investments portfolio. Thus, when equity markets rise then these are times when you can actually correct your portfolio laggards.

3. Rebalance

If you follow an asset allocation approach then with equity performance your equity share too would have grown. This would have altered your asset allocation. If the share has changed substantially then this is the time when you can rebalance to bring it to the original allocation. What strategy you adapt for rebalancing needs to be worked out based on your financial situation.

4. Just stick to SIPs

Surely, it’s the darling of equity markets now and investors are following it. But many discontinue it when markets are at good level. The strategy is to reenter again when markets fall. This would be a wrong strategy considering the benefits of compounding delivers only when you remain invested for long. Thus, it’s advisable to stick to your SIPs and let the benefits of compounding accrue to your portfolio.

5. For new investors

Investing in equity markets requires time and expertise if you wish to do it yourself. But rarely investors have these both and so when you are new to the markets you look at options for advice. Many go with the herd and make choices along with their friend colleagues etc. But these choices prove fatal as each individual’s financial situation is unique. So, it’s advisable that when you are a new investor seek professional advice especially when everyone around you is excited to earn their bucks as others have earned.

Equity markets are a desired investment bit it has room for mistakes. Going by news or friends advice or with herd has their drawbacks which you should remember. If you are in for a long haul, then you will experience these ups and down. What matters is sticking to your investment objectives and having a rigorous review process.

(The author is an independent financial planner)