You may find rebalancing a strange strategy.
Alternatively, you can also increase your investments in debt and pause your investments in equity till you reach the 60-40% equity-debt mix. To rebalance, you will have to sell equities and use that money to increase debt investments. This is why you need to rebalance your portfolio and bring the asset mix back to 60% equity and 40% debt. In other words, your portfolio is riskier and more volatile than you are comfortable with. This means equity is 9% in excess, while debt is short by 9%. Investment As Per Target Asset AllocationĪs the table shows, your current asset cllocation would have moved from a 60-40% equity-debt mix to nearly 69% in equity (38.1% large-cap + 24% mid-cap + 6.5% small-cap) and 31% in debt. Such a stark difference in the performance of different schemes would change your targeted asset allocation significantly.Ĭhange In Asset Allocation Due To Market Volatility On the other hand, the investments in debt only grew around 6%. 4 lakh is in debt.Īs the equities have rallied in the last year, the large-cap, mid-cap, and small-cap grew by 47%, 62%, and 77%, respectively. Your equity portfolio is further split to 35% large-cap, 20% mid-cap, and 5% small-cap. You want 60% of your portfolio invested in equities and the remaining 40% in debt. Say the total size of your portfolio is Rs. Let’s understand rebalancing with an example. In that case, your investment strategy should be to rebalance, i.e., bring it back to the original level you are comfortable with. Because if your portfolio’s allocation to equity has increased considerably, your portfolio has become more risky and volatile. When there is a rally in the stock markets, check if allocation to equity in your portfolio has risen significantly. Rebalancing – Prudent Investment Strategy At Market Highs Because your asset allocation mix will change as markets rise, you need to bring it back to its original mix. You need to make changes in your portfolio after a significant correction or a rally, but these changes should be in accordance with your asset allocation. Nevertheless, this does not mean that you do nothing following a market rally. Therefore, sitting on cash or redeeming all your equity investments just because the stock market is setting new highs are not good ideas. These data points simply highlight that while the stock market may seem higher in the short term, you will never know which point is the end of the rally. So you would have comfortably earned double-digit returns had you invested during slight dips in the market. More importantly, nearly 7 out of 10 times, you would have earned more than 8% returns and beaten the inflation by a decent margin.
NIFTY 50 TRI Returns Post All-Time Highs Since Jan 2000Īs the table shows, even if you had invested only at all-time high levels during the past 20 years and stayed invested for at least 5 years, you would have still earned positive returns 100% of the time. In other words, there have been 40 months in the past 20 years when the stock market kept rising to clock new highs after new highs. And only in 23 months, the markets fell after a new high. There have been 63 months in the last 20 years since January 2000 when the NIFTY 50 ended a month on a new high. To get some perspective on this question, let’s look at how markets have moved in the past. One of the best ways to answer if you should sell or discontinue your investments in equity is to find out how justified this fear is that markets fall after every rally in the market. Should You Stop Your Equity Investment At Market Highs? To begin with, let’s first find out if this is the right time to sell or stop your equity investments.
Best way to invest in stock market how to#
In this blog, we will address all such dilemmas to help you figure out how to invest at market highs. On the face of it, this step sounds logical, but is it practical? Is it the best investment strategy at this point? After all, there is a possibility that the stock markets could continue to rally further. They wonder if it is time to book profits and wait for the correction to start reinvesting. Many investors are also skeptical if the markets can sustain this growth. However, in the back of his mind, he is also worried about a possible market fall wiping out all his gains. Given the quick bounce back from the covid-19 market crash in 2020 and the next rally in the stock market, Rohit is hopeful that markets will keep touching new highs.
And his SIPs in equity funds are witnessing stunning double-digit returns. The stock market is touching all-time highs now and then. 42-year-old Rohit is quite happy with his investments.
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