When is a good time to invest?” This question comes in the league table of the top five questions around personal money decisions, the others being how much to invest, am I saving enough, what should I invest in and am I doing OK? Though it sounds generic, the question is about stock market-linked investing—either directly or through mutual funds (MFs)—and the person asking is worried about markets falling.
For such a tiny question, the subtext that I read is quite large. When I see this question, I know that the person is looking at a large lump sum investment, I know that he has all his money sitting in a savings deposit or fixed deposits and I know that he secretly also owns some dud penny stocks bought on tips over the years.
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Because anybody who has been investing for the past few years knows by now not to ask that question—the evidence of the last two bull and bear phases shows that it does not matter when you invest, provided you are not going to the market one day and hitting it with all you’ve got. While this strategy can multiply money manifold, if you happen to catch a falling market at its lowest, it can equally reduce capital significantly if the opposite happens. Waiting for an appropriate day to invest will make us wait forever because it is only in hindsight that we see the top or the bottom of a market. Mint Money has crunched enough data to show that it pretty much does not matter which day you begin investing, but as long as you go on investing and hold for at least 10-12 years, there is no way you can lose in index-based investing. The evidence from managed funds is even stronger. There are equity funds with a five-year track record of 25% plus returns year-on-year. But you had to have had the stomach to hold on over the 2008 period when markets went into a free fall.
In fact, the investors who continued with their systematic investment plans (SIPs) over the period see the value of a falling market for a staggered investment plan. For a rising market, without any major periods of falls, a lump sum investment will always give more than a staggered investment. So, counter-intuitive as it may sound, begin an SIP whenever, and hope like hell that the market falls sharply for a few months before it takes off again.
Endnote 1: I am wondering at the MF redemption numbers and possibly seeing ghosts where none exists, but I find it strange that data shows a huge outflow from equity funds without the opposite flow coming in. But the hundreds of questions that drop down into various mail boxes in response to the weekly TV show on NDTV I co-anchor, Let’s Talk Money, show little sings of nervousness or being cheesed off with funds. All we get are question after question on how to begin buying funds, how to clean up portfolios and how to buy more. I absolutely do not see any rush of investors out of funds—if we agree that the people who write into TV shows represent the small investor. Just wondering if there is some HNI (high networth individual) money being nudged out to prove a point?
Endnote 2: I read with relief the announcement last week that airlines will have to compensate passengers for flight delays and cancellations. I would like to suggest that this be extended to flights being preponed (sorry for using a word that does not exist in a dictionary but we use it anyway in India). So I have a 9.25am flight from Mumbai to Delhi on Jet. The night before, an SMS tells me to reach the airport an hour earlier as a remote parking bay has been assigned to it. I decide for early checkout and at 7.05am signed off the hotel room in Parel. Tick-tock, that’s my SMS. I read in disbelief. Jet has cancelled the 9.25am flight and merged it with the 8am flight! I rush. Manage to do Parel to airport in 30 minutes of pelting rain and the early morning Mumbai mess; 7.35am reach the counter. “Flight is closed for boarding. It is empty, but you should have come in time.”
Disbelief, anger and arguments, but the fault according to this airline is mine. Just as I am turning to buy another ticket, I hear others with the same story. Now in a pack, we’re able to get Jet to put us on an Air India flight. Jet staff is unable to make the airport transfer in time because it is raining and we miss that as well! Air India is good enough to put us on another flight an hour later. So I would humbly request those that decide these things: please include preponing flights in the bag of things that get passengers compensation.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money.
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