The news gets worse every day. Food inflation is in double digits and the base effect argument is now wearing thin. The forecast for prices does not look good, never mind what the periodic calming statements by those in the government say. Interest rates are rising and another rate hike is imminent. One corruption issue after another erodes the credibility of the Central government and the regional satraps already smell blood. The markets are finally shedding some of the extra points the index had gathered in the momentum of the “we’ve-kicked-the-global-slowdown” euphoria. You’re worried about your money invested in the market and wondering if you should wait before you enter the market: should I wait for it to settle a bit?
Also Read Monika Halan’s earlier columns
If you thought that and you are not a day trader or a career investor (those who live off investing money in stocks, bonds and other assets and for whom buy and hold is death), you’re wasting your time. Sounds very good to ask: should I enter the market now? Makes one feel like Gordon Gekko, the Wall Street guy who defined greed. Of course, 20 years later the real Wall Street redefined it for him, but that’s another story. But we ant-like creatures must look in the mirror and see ourselves for who we are and then choose how we behave with our investing decisions. We are not big swingers in the market and will never be. We will never talk about bond yields and duration and make money. We can’t even manage our real estate investments properly—that annoying registration means we need to step out of our bubbles to go to the magistrate’s office. Some of us work jobs that we dislike to pay bills and others are lucky to do the work we love and manage to find somebody to pay our salary serially. Both cases have a salary at the end of the month that pays the bills. And then a surplus (usually not in lakhs) that we fantastically offer to the market and ask: should I enter the market now? It’s not called “entering” the market. It’s called making systematic investments. The choice set for a person who has very little time to spend in managing money is restricted to forced saving through the provident fund cuts, and the equated monthly instalment and systematic investment plan (SIP) debits straight from the bank—anything more needs time to think, and that is one thing that the urban mass affluent person sandwiched between two competing generations for his time, does not have.
The only people allowed to ask this market-timing question are those retiring at around this time and have their life’s pot of wealth suddenly burgeoning their savings account with zeros only seen before in telephone numbers. They need to be careful about what the market looks like before they step in. And that is after ensuring a steady income stream from safe products. They’d do well to stagger investments across time to reduce the risk of a sharp drop.
To get through this noisy period when the world is ending, put some distance between you and the market. Don’t watch it like a cricket match if the index is losing steam. OK, let me allow one grasshopper trick to us ants. Every time the market drops by 1% top up your existing SIP with a fresh infusion of funds, that way you will buy more all the way down to the bottom of the market. Of course, waiting for the bottom to be reached before you put that money will be a long wait. A bottom will be defined only from the perfect vision of future.
Endnote: More on Citibank. I have a loyalty card from Shopper’s Stop. And for the last three or such years, each time I slide it over the counter for future free shopping, a Jar Jar Binks (if you don’t know who that is, stop living) like guy stretches his neck to examine the card and pushes a form across. It is the Citibank some metal (gold, platinum, whatever) co-branded credit card with the retail chain.
If I sign up I get some extra points and more free shopping. For three years, the round-eyed kid that tags along with me on such trips, heard me being rude. “No, I don’t want it,” I mutter. “But ma’am, you get extra points”, he leans forward, a bit more, and you are horizontal dude, says my thought bubble. “I don’t trust this bank.” (Mom, you’re so rude!) “But ma’am don’t use the card, just use it for the points you get.” “They’ll find a way of milking the account,” I tell them. Every time. Same conversation. And I still don’t have the prized metal big-deal credit card. So when the bank hit headlines with the fraud next to it, the kid exclaims: Oh! that’s why you never signed up with Citi! Right.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, and can be reached at email@example.com