Many mutual fund investors, especially new comers, are nervous as the market is hovering around historical peak. All the talks of expensive valuations, liquidity-driven rally, etc. are making them anxious about their investments. Many of them are asking their mutual fund advisors pointed queries about their investments. According to advisors, they are cautioning their clients against committing certain mistakes that they say happen in a risking market like the current one.
Don’t get greedy
When the market is on an upswing, many mutual fund investors tend to become adventurous. If they could, they would put all their money in equity mutual funds, especially in the category which is offering the highest returns. Needless to say, this could backfire big time. Stick to your goals and allocation. If you have allocated money to equity schemes to achieve your long-term financial goals, stick to it. Don’t alter other investment plans just because the stock market has beaten them. If you have spare cash to invest, sure, go ahead and invest in equity schemes with long-term horizon. You can also make tactical allocation whenever there is a big correction. However, desist from making big changes to your original investment plan and go overweight on equity schemes.
This may sound contradictory. Why would someone panic when there is exuberance in the stock market. Well, there is always a seller for every buyer in the market, right. Some investors tend to get little anxious when everyone is talking breathless about the performance of the market. Even at the tiniest sign of a reversal of trend in the market, these investors tend to flee the market. This also is not a right approach towards investing. If you have invested with a long horizon, you are bound to go through various phases in the market. You simply can’t avoid them. Hold your nerve and stick to your financial plan.
Ignore the noise
Expensive valuations, imminent correction, liquidity-driven rally, threat of Fed rate cut… The market is never short of talking points. And pundits love to discuss every topic threadbare. However, a mutual fund investor need not be perturbed by all this noise around them. Most of these topics are relevant only to punters who build positions every day to encash on such news. A long-term investor need not lose sleep over them. Most of these earth-shattering events would look like minor blips when you look back after a long period.
Avoid impulsive decisions
Do not make any buy or sell decisions impulsively. Many investors have the habit of pressing the trigger soon after an event or news that they believe would alter the fortunes of their investments. Do not commit this mistake. Always step back, read about the topic, discuss it with your advisor or friends or colleagues who you discuss such issues. Do not do anything until you have all the necessary information to form an informed opinion.
Don’t chance fancy themes
Buy and hold is the only strategy that works, but it is also a very boring strategy for some. That is a section of the market is constantly looking for fancy ideas that would help them make more money. Often, it is very difficult to resist betting on the theme as it would be widely touted as the magic formula to multiply money. However, nobody remembers about the formula once a new idea dethrones it. Do not get caught in the race if you wan to achieve your financial goals. Just remind yourself: investing a small amount regularly over a long period is the only way to achieve long-term financial goals.