The markets are down and a lot of people are asking us what they should do in the current situation. It is difficult to answer – because the answer depends on the individual’s situation.
For example, if you have no equity investments in your portfolio, you should start investing slowly. Or if your SIP is less than 2% of your Salary – you should increase SIP amount. Or if you are exposed 100% to small-cap stocks, you should think about diversifying.
In any case, here are 4 thumb rules that are generic – and easy to remember.
It is not as exciting as “Buy Low, Sell High” but for most investors, SIP works. Boring is good. The probability of losing money goes down with the duration of holding. Invest to make money, not for excitement.
Keep your eggs in multiple baskets. Equity, Debt, and Gold are three major components.Then each of them has more flavors. Equity can be across sectors, and market caps. Similarly, there are various kinds of debts. Liquid funds work for most investors. Diversify according to your risk profile.
Don’t try to sell everything now and try buying later thinking that markets will go down further. Or don’t try to invest heavily now thinking that markets will go up. Truth is, it is impossible to time the market.
If you are covered on the above three points, and still want to play the markets, do it with smaller amounts. Remember, the first rule of investing is to not lose money.
Investing is a long term game. Remember what Paul Samuelson said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”