Investors understand that trying to time the market by always buying low and selling high is an unrealistic goal. Even with that information, if you have a large sum of money, the prospect of investing when the stock market is reaching all-time highs may give you pause. Similarly, few investors have the stomach to ‘buy the dip’ when presented with the opportunity.
Sitting on cash simply because the NIFTY is making new highs is a mistake on multiple levels. While investing, it is vital to base judgments on long-term expectations rather than short-term market movements. Second, past performance does not predict future results. Setting new highs does not necessarily imply that the market has peaked and that a correction is near, just as a halt during a violent selloff does not imply that there is no more downside.
Furthermore, historical data does not support the notion that investing cash during a bull market will result in reduced future returns.
Let’s look at the Historical data
According to ET Money, Since January 2000, the NIFTY 50 has concluded a month on a new high 63 times in the last 20 years. And the markets have only fallen following a new high once in the last 23 months. In other words, the stock market has risen for 40 months in the last 20 years, setting new highs after new highs. So, equities markets do not always experience a downturn following a new high. Even increasing equities markets, however, give sufficient prospects for rewards.
Check if you should Rebalance your Portfolio
When the stock market rises, check to see if your portfolio’s equity allocation has increased significantly. Because if your portfolio’s stock allocation has increased significantly, your portfolio has become more hazardous and volatile. In that instance, your investment approach should be to rebalance or return it to the initial level with which you are comfortable.
As an investor, rebalancing serves as a risk-mitigation approach. It allows you to keep your investments in line with your goals by rebalancing your portfolio on a regular basis. If your risk tolerance or investment strategies change, you can rebalance the weight of an asset class in your portfolio by reevaluating and developing a new asset allocation.
Diversify your risk
Assume you have solely airline equities in your portfolio. Share prices will fall in the aftermath of any negative news, such as an indefinite pilot strike that will result in flight cancellations. This means that the value of your portfolio will fall noticeably. You can counterbalance these equities with a few railway stocks, affecting only a portion of your portfolio. Indeed, there is a strong likelihood that railroad stock values will climb as passengers seek alternative modes of transportation. When you diversify, you take a defensive stance rather than aiming to optimise your profits by investing in the most profitable companies.
Selling equities investments or hoarding cash simply because the SENSEX or NIFTY 50 has reached fresh highs is a mistake on multiple levels. To begin, while investing, it is vital to base judgments on long-term expectations rather than short-term market movements. Second, making new highs does not always imply that the market has peaked and that a downturn is impending.
Thus, rebalancing your portfolio is a wise technique for investing at market highs. Because asset allocation acts as a counterweight to the dominant trend, this is a wise investment approach.