SIP your way through falling markets
“There could be no better time to stay invested in your funds;
Now, may not be a good time to withdraw your money;
The next few months could be great to invest money systematically. “
None of these comments are those that anyone would give you while having conversations about the market and money.
James Montier, in The Little Book of Behavioural Investing ( a much-recommended read for any investor), says, “How do we as investors prevent ourselves from emotional time travel pitfalls? “, One answer is to prepare the pre-commit.
When we commit to a SIP, we commit to letting that investment continues in a systematic manner until it’s tenure/ unless something goes wrong at the fund level. Assuming that you have already taken care of any emergency funds and kept them in a liquid fund. The markets are much like our emotions and trigger our emotions too. What’s happening around us affects our behavior reactions and actions. More often than not, when emotions are high, we make decisions that we often regret. A good thing to do is to postpone the reaction because the cost of that reaction could be very high.
Sir John Templeton, the legendary investor and mutual fund pioneer says,“The time of maximum pessimism is the best time to buy, and the time to maximum optimism is the best time to sell.” Few would disagree with such a sentiment. However, as investors our biggest hurdle is myopia, an overt focus on the short term.
While we make SIP investments and commit them to long-term goals and promise to stick to them till the goal is achieved, when the markets turn a bit chaotic, we get all sweaty and hit the redeem instead of the investor hold button.
There cannot be a better time than a falling market to invest because all your investments will help you enter the markets at much lower levels than you would otherwise with equity SIP.
The next time you hear/ read that the markets have fallen 5%, you should enjoy the thought that you possibly got your SIP entry at a similar discount, and holding your emotions through this period and staying invested will only lead to monumental gains.