Investing is all about seizing the right moment. To get to that point is no mean achievement. A lot of things have to happen before that. By the time you reach a stage where you can invest, you have
successfully managed to save money. You have managed to curb your spending habits. There are a lot of small victories that you have already achieved. In the investment world, it is a new beginning. You consult your financial advisor and those in the know. You talk to people who have done investing for years. The idea is to find out the right investment strategy.
Financial markets move in cycles. Stock markets are even more volatile. They move in tandem with the profits of businesses. However, the path equity assets take is volatile. When share prices are at a record high, many new investors enter equity markets. Between March to October 2020, benchmark indices like the NSE Nifty and S&P BSE Sensex have had a roller coaster. A dramatic crash in March was followed by a slow climb up. These indices are now almost at a level where they were before the lockdown. Many of you are new to equity markets.
You have jumped at the idea of buying at a low price when share prices fell. A lot of you also did not want to miss out. When it appears that everyone around you is making money in the stock market, you do not want to miss out on the action. Your colleagues, friends, relatives discuss stocks that made them rich or helped them create wealth attracts a lot of attention. You want to have a slice of the good fortune too. The fear of missing out or FOMO is now a research topic. If you search online, you will find papers written by psychologists and researchers.
The proliferation of social media means people can announce their wins in financial matters or personal life. A lot of that feeling of missing out comes from social media.Be that as it may, you need to focus on your goals. Any deviation from them just because you are getting a FOMO syndrome due to short-term considerations would hurt your path to financial security. To get rid of that feeling, you need to stay on the path of regular investing. If you are investing every month, you will benefit from the market cycles. Your fear of missing out will cloud your thinking if you are looking to time the market.
Market timing is to know when the share price of a stock is appropriate for buying and selling. As an individual, it is not easy to figure that out. You do not have the information you need to arrive at such a decision. You need resources to get that information. The best option is to stay put in your systematic investment plans. Professional fund managers managing your money can figure that out for you if you regularly invest through mutual funds. You can also pick eight or ten stocks that are market leaders in their respective sectors and put money in them every month.
Or you can put your money in the Nifty or Sensex exchange-traded funds. It is easier for you to do that if you are a non-finance person and do not follow market trends every day. If you are financially aware or in the company of people who are more knowledgeable than you are, you need to tread with caution. Buying anything just because someone else says may or may not work in your favour. The primary reason for that is the difference in financial goals.
Your investments must be in line with your financial goals. You must not deviate from that even if you come across a ‘hot tip’. The other way is to create a risky asset corpus. After securing regular investments for your financial goals, you can set aside some money to act on market information that you think could help. However, you should be willing to lose that money if markets do not move in the direction you want them to.
(The author is editor-in-chief at www.moneyminute.in)