The share market has been a roller coaster ride in 2021 with the Sensex reaching new highs. Many believe that the stocks investments are overvalued and there is an impending crash waiting to happen. The question then arises, what should investors do in such a scenario?
With the latest share market news being Sensex and Nifty reaching all-time highs, the most obvious questions that arise are:
Should an investor exit their investment?
Whether an investor should quit their investment at any point looking at the stock market condition is entirely dependent on the their risk aversion level.
We all know how difficult it is to form healthy habits. It’s much more difficult to get rid of terrible ones. When this reasoning is applied to investing, one common bad habit is trying to ‘time the market’.
In July 2020, a significant number of investors liquidated their portfolios. From a logical standpoint, it was the correct decision. Share market analysts expected the market to drop once again. But we are all aware of what happened next. So, it’s not always about being logically correct; it’s about forming a proper habit. Many of those investors returned to the market around October 2020, and it was uncomfortable for them to witness the market’s rise after selling their assets in anticipation of a decline.
How to maximise market potential?
The stock market is at an all-time high, and all this while you have been waiting for the right time to start investing.
But it is essential to not get caught up in the euphoria. You never know where the market will be going at any given time. It would be a waste of time to wait for a market correction before investing. This is why you should get started right away, even if the market is at an all-time high. The markets will only continue to rise. Sure, there may be some bumps along the road, but the overall market trend will be upward looking, many experts believe.
Here are some tips that could help you maximise the market potential:
- Examine your portfolio and eliminate any value stocks that don’t appear to be useful anymore
- Rebalance your portfolio’s asset allocation
- Broaden your portfolio by including stocks with diverse market capitalisations
- Only invest in known financial products. Don’t put your money into new fund offers from investment firms
Where can an investor get both growth and good prices within the market?
High equity markets frequently coincide with low-interest rates, so there is no such thing as a good or terrible moment for any asset class. You may invest in funds with some fixed-income safety cushion, such as equity savings funds, or you can look at defensive funds like asset allocation funds at such high Sensex.
Instead of trying to outperform the market, you need to focus on your objectives and wait for your stock investments to improve. If your time horizon is longer than seven years, you must act like a company owner and continue to invest.