Kunal is keen to quit the equity market as he is not sure what lies ahead. Those around him seem to be investing, even though there are murmurs of a slowdown and uncertainty due to upcoming elections. He believes there is little point in following the crowds, and is convinced that it is a good idea to leave the market even if others are buying. However, a nagging doubt remains: What if those who are buying turn out to be right?
Kunal believes he should get the market timing (entry and exit) right in order to make money from equities. At the time he invested, it looked like nothing could go wrong. Everyone seemed very optimistic about India and the equity markets. One gets to know the market has peaked only after it crashes, and then it is too late to quit. No one can time the entry and exit right, which is why one should stick to simple rules.
Whether Kunal should invest in equity or not should be guided by his goals. If he has long-term goals, which need protection from rising inflation, he needs the equity markets and the capital appreciation they provide. The average return from equity is high, but is not achieved year after year. By quitting at the end of a couple of years of low returns, Kunal may miss out on an upcycle that can help him average his returns out. It is only from staying in a rising market that Kunal can hope to earn a better return in the long run. Therefore, to quit or to stay invested will depend on whether he needs to earn a higher average return for his goals.
As for how much to keep and how much to take away, Kunal should stick to an asset allocation plan. If his goals require 40% investment in equity, that exposure should be maintained. When he books a profit, he has to find another asset to invest it in. But limiting his exit to this percentage will help him manage his investments better. He will stay through rising and falling markets and achieve the average return. Kunal should quit only if he has decided that equity markets are not for him. In that case, he should invest more to achieve the same targets, since his returns are likely to be lesser. He might harm his returns if he chooses to quit now, only to come back again after the markets have risen. Investing a proportion of savings consistently is what will help investors who are not market experts.[“source=economictimes.indiatimes”]