Posted by: Arti Bhargava on Feb 26, 2018, 06.30 AM IST
Prashant's job as a finance executive pays well. Over the past year, he has been comfortably saving money each month and investing primarily in equity. He is worried about the way his equity investments have been performing of late and wonders if there is any point in putting more money into losing products. The one-year returns on his portfolio seem to be zero. His feels he should stop investing now and start only when the market looks up again.
It is natural for Prashant to feel discouraged by the performance of his investments. However, the markets will improve, and he should be in a position to benefit when that happens. The only way he can do that is by continuing to save and invest.
Prashant should actually be saving more in times of market uncertainty. His corpus would have shrunk because of the fall in the value of his investments and he should save more to make up for the value erosion. If he does that, when the market cycle turns, he will have a larger corpus and will benefit from the higher rate of return.
On the other hand, if he stops his investments now or even withdraws with the intention of investing when the markets improve, his benefit will depend upon his ability to judge exactly when the market will start moving up. Moreover, he will have to invest a large sum to make up for the period he has not saved in. This will be difficult and Prashant’s benefit from the rising market will be limited.
Since Prashant has been saving regularly, he should continue to do so and even increase the amount during a downturn. If the falling values in equity make him uncomfortable, he can split his money between equity and fixed income investments. The plan should be to systematically shift into equity when the markets begin to stabilise.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)