Financial Cocktail Samosas: Bitesized Money Morsels For You, 27/09/2023

Market Hits All-Time High, What Should You Do With Your Investments?

When the market hits an all-time high, it can be tempting to think that it’s time to sell and take your profits. However, it’s also important to remember that the market is cyclical, and there will always be ups and downs. It was always the first time that Nifty reached the 10,000 mark, then the 15,000 mark, and now breached the 20,000 level. Setting new highs does not necessarily mean the market has peaked or is over-heated, and a correction is on the way.

Here are some things to consider when the market hits an all-time high: 

Stick to your investment plan. If you have a long-term investment plan, don’t let the market’s short-term movements derail you. Continue to invest regularly and don’t let your emotions get the best of you.

Rebalance your portfolio. If your portfolio has become too heavily weighted towards equities or some particular fund or stock, you may want to rebalance maybe even by shifting some of your equity holdings to hybrid funds or fixed-income assets. This can help to reduce your risk and improve your portfolio’s overall performance.

Focus on your investment goals. If you have any short-term goals, you may want to move some of your money into more conservative investments. However, if you have a long-term investment horizon, you can stay invested in the market and ride out any short-term volatility.

Continue to invest regularly. Don’t let the market’s short-term movements affect your ongoing investments. Continue to invest regularly through the systematic investment plan (SIP) or systematic transfer plan (STP) if you are looking to invest a lump sum amount.

Remember, over the long term, the market has always trended upward. So selling at an all-time high could mean locking in lower returns than if you had stayed invested.

(Contributed Yogesh Gola, Relationship Manager, Advisory Desk, Hum Fauji Initiatives)

Valuable Insights to be gleaned from Chandrayaan Mission 

The Chandrayaan Mission, India’s historic ambitious lunar mission, has not only placed India among the elite group of nations to have successfully reached the moon but also provides valuable lessons that extend beyond the realm of space exploration. Here are some key takeaways:

Set Clear Goals: The Chandrayaan mission began with a clear objective to explore the moon’s dark side. Similarly, setting clear financial goals is very important for success. Whether it’s saving for retirement, buying a home, or paying off debt, having a specific target helps in creating a roadmap and staying focused on achieving those goals.

Embrace Innovation: The mission utilized advanced technology and innovative approaches to accomplish its goals. Similarly, in finance, it is important to embrace innovation and stay updated with the latest trends and developments. Adopting new financial tools, technologies, and strategies can help us stay ahead in the ever-evolving financial landscape.

Risk Management: The mission faced technical challenges and uncertainties, but the team managed risks effectively. Similarly, it is crucial to assess the potential risks and rewards of any investment or financial decision before taking action.

Patience and Perseverance: The mission faced setbacks and challenges, but it never gave up. The team displayed perseverance and determination, ultimately achieving success. Likewise, in financial planning, it is important to remain persistent even in the face of obstacles. Building wealth and achieving financial goals often takes time and consistent effort.

Celebrate Achievements: The mission celebrated every milestone achieved, boosting team morale and motivation. Similarly, celebrating financial milestones, such as paying off debt, or achieving investment goals, helps maintain motivation and reinforces positive financial habits.

This mission serves as an inspiration not only for space exploration but also for personal finance and life in general. Just as the mission drove India’s space program to new heights, implementing these lessons can help us reach new financial heights and secure a prosperous future.

(Contributed Pratibha, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

The ‘ARC’ Formula: A Strategic Approach to Wealth Creation

Wealth creation is not merely a function of income, but also of expenditure and investment. ‘The ARC’ formula is a simple and effective framework for design your financial strategy and enhance your wealth over time. Let’s see what it is:

1) Asset allocation: This is the process of determining the optimal mix of various asset classes, such as equity, debt, gold, real estate, etc., in your portfolio. Your asset allocation should be aligned with your goals, time horizon and risk profile. Asset allocation is crucial because it determines the expected return and risk of your portfolio. According to a study by Brinson, Hood and Beebower, asset allocation accounts for a whopping 93.6% of the variation in portfolio returns, while security selection and market timing account for only 4.6% and 1.8%, respectively. This is actually quite the opposite of what most of us think and act in financial matters!

2) Regular savings: This is the practice of setting aside a portion of your income every month for your goals. You should aim to save at least 20% of your income and incrementally increase it. You can also automate your savings by using instruments like systematic investment plans (SIPs) which deduct a predetermined amount from your bank account on a predetermined date. They also help you to avoid the pitfalls of emotional investing, such as buying high and selling low.

3) Compounding: This is the phenomenon of earning interest on interest, which accelerates the growth of your money. Compounding works best when you start early, invest for long durations and reinvest your returns. For example, if you invest Rs 10,000 per month for 30 years, you will accumulate Rs 3.52 crore at 12% annual returns at the end. But if you invest the same amount for 20 years at the same rate, you will accumulate only Rs 92.49 lakh at the end. This shows that the longer you stay invested, the higher the benefit of compounding.

The ARC formula is a proven framework to create wealth in the long run. However, you should not succumb to any schemes that offer quick or unrealistic outcomes. You should also review your financial plan periodically and make adjustments as per your changing needs and market conditions.

(Contributed Ujjwal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

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