In my opinion, for anyone contemplating investing into an equity fund, this is as good a time as any to do so, provided one puts in place some kind of a safety net, so to speak.
While it is true that stock prices have risen significantly in the last several months, and the valuations are not as attractive as, say, a year ago, these facts are now a part of history and cannot be re-written. But should we wait for a more opportune moment? No matter what anyone may say, only time will tell us how remunerative any decision taken today will be. Going forward, it is possible that we may look back and wish we had waited a while before investing. It is equally possible that we may look back and regret not having invested at this point.
What is probably more important is that we plan with an awareness of the risks that could accompany our investment decision. I, for one, regard stock markets with the awe and respect that I reserve for forces of nature. Any attempt that I make to harness their power is done while taking as many precautions as I can, with the knowledge that there is still the possibility of being overwhelmed. Equity funds give our portfolio the potential for appreciation, yet their price fluctuations can be unnerving for most of us. Panic in a downturn is a key reason for investors missing out on the benefits from equity investing. In the event of a steep or sustained fall, most of us will inevitably grapple with discomfort. Here are some things that we can do to soften the impact:
Know how much to invest: Investing is not an end in itself but a means to an end. Having well-defined financial goals can help determine the extent of investment that we should have in equity funds, and it is best to keep our investment within that limit.
Plan to stay invested for as long as possible: A number of experts suggest that equity investments should be planned with a minimum time horizon of 5 years. This is usually attributed to the fact that historically, business/ market cycles (peak to recession and back) have lasted, on an average, for 5 years or so. I am not an expert on this but I look at this as a reasonable rule of thumb, nothing more. From the evidence that I have examined, the only somewhat conclusive inference that I can draw is that the longer we hold, the lesser are the chances of unpleasant surprises.
Avoid investing a large amount at one go: If investing a large amount, consider doing so in small tranches rather than at one go. This helps protect against the soreness that one is likely to feel in the event of a sharp fall in prices shortly after initiating the investment.
