“When to enter or exit stock markets?” – Impulsive investor’s dilemma
Macro-economic factors and/or geopolitical matters influence financial markets. Common macroeconomic factors include gross domestic product (GDP), the rate of employment, the phases of the business cycle, the rate of inflation, the money supply, the level of government debt, etc. So, rise and fall of financial markets due to rising crude oil prices, weak rupee, political uncertainty ahead of state and central elections, etc are typical phenomenon. Nonetheless, rationality among investors dissipates with every dramatic rise or fall in financial markets. They fall prey to greed and fear or both. They cannot decide whether to sell or buy or just stay invested. This is a catch-22 situation for investors who are investing without a defined purpose. Any investor investing without any particular objective faces the dilemma of when to enter or exit stock markets.
What’s the point to randomly enter or exit stock markets?
The overriding reason why investors want to exit stock markets in an unplanned manner is fear. The fear is that of losing money.
The dominant cause why investors want to enter stock markets in an unplanned manner is greed. The greed is that of making more money.
Fear and greed take the centre stage when you are not focusing on your specific financial goals.
When someone fails to define the purpose of investing, he/she is doomed to failure. Financial markets are neither rational, nor are they efficient. When you have defined your financial goals, you come to know the following basics:
- Why do you need the money?
- How much money do you need?
- When do you need the money?
When should I enter or exit stock markets – Impulsive investor’s dilemma
As Financial Advisor in Kolkata, we actively focus in behavioral finance. Behavioral finance is a way of understanding investor and market behaviors. Based on the above comprehension and your risk profile, investment strategy can be designed separately for each financial goal. Your risk profile is the keystone of the entire process. Investment planning helps you to steer clear of the unfavourable emotions. When you have goal-based investment strategies in place, you need not worry about timing the financial markets. You have clear idea of when and how to enter or exit stock markets. When you have long term financial goals, you may choose to invest directly in stocks or via equity mutual funds to participate in stock markets. Equity exposure should always be as per your suitable asset allocation requirements.
We believe that your risk profile, your personal factors along with the macroeconomic matters and the above stated basics should be governing the asset allocation strategies. Re-balancing is an exercise which is carried out at pre-defined intervals to tide over the volatility in the financial markets. Re-balancing is not mere profit booking or averaging out of losses within the investment portfolio. The exercise depends on how much time is left to meet the specific financial goal, how much money is still needed to fund the goal, prevailing risk profile, market scenario, personal financial situation, etc. Again, when your goal year is approaching, you may opt out of risky investment avenues to protect your gains from market fluctuations. You need not randomly enter or exit stock markets.
Rudiments of investing
1. Why are you investing?
The purpose of making any investment must be clear. It is what drives all other matters. As Certified Financial Planner in Kolkata, we promote financial planning tools and processes which help you to establish your life-goals. When you are following your life-goals, you do not feel the need to unsystematically enter or exit stock markets.
2. How should you invest?
The process of choosing investment avenues is critical. This is where investors adopt casual approach and end up following others. As SEBI Registered Investment Advisor in Kolkata, we critically analyse and give due importance to the person’s unique requirements to develop product-suitability matrix by considering several parameters. Parameters include your goals, risk profile, personal situation, macroeconomic factors, etc. Therefore, thinking when to enter or exit stock markets is a futile attempt.
Risks and returns in investing are two sides of the same coin. Higher the risks, higher the potential returns on investments. Similarly, lower the risks, lower the potential returns on investments. You need to strike optimum balance between your risk taking ability, willingness to take risk and your expected returns on investments. Saying “no” to one risk may also mean “yes” to another. If you intend to avoid fluctuations in financial markets, you may be exposed to risk of inflation.
3. What are you trying to achieve by investing in any investment avenue?
Your expectations from financial markets should be in sync with your risk profile, specific financial goals, macroeconomic and/or geopolitical matters.
We must set the seal on our tendency to follow others. Analyzing yourself and deciding on the course of actions may prevent you from being financially distressed. If you don’t consider yourself proficient enough to manage your own finances, it’s wise to hire a qualified professional. As Fee Only Financial Planner in Kolkata, we believe that the role of a qualified professional is similar to a sports coach. The fair-minded financial steps and non-financial approaches shelter you from unpleasant financial troubles, enabling you to patiently reach your objectives on time.
