Stock Markets falling-Where to invest now?
Stock markets are falling. SENSEX is at 17,900 levels. 2300 points down in last 4 weeks. Your mutual funds are showing negative returns. You must be up-set with your investments. Gold prices are going up. If you think to book losses and come out of stocks or mutual funds, then you are one among the thousands of investors who lose their money every day with this strategy. Where to invest now in falling stock markets?
Can we invest in stocks now?
Yes of course. I am not saying that your money would get double or triple in next few weeks or few months after market recovers. Look for SENSEX or NIFTY stocks. Which stocks are falling heavily? Is it temporary phenomenon or fundamentally something is wrong with the company? If this is temporary situation, why not you buy such stocks? Good stocks are purchased not when someone is buying, but when someone is selling. Buy stocks when stock markets are falling and not when markets are reaching its peak level. Buying index stocks during correction is the good strategy to make handsome returns in long run.
Now don’t ask me a question what is the bottom level of SENSEX so that you can buy stocks. No one would be able to predict this. If your broker is telling you the bottom level of SENSEX now, he is fooling you.
Now the question is how to select winning stocks. I agree that it is not that easy.
Choosing SENSEX stocks could be one strategy. E.g. TCS has shown a high peak of Rs 1,900, now currently it is trading at Rs 1,700. Means 10% down from its peak level. But at what level one need to buy. You may adopt different strategies like accumulating at various price levels from now and each and every dip should be looked as buying opportunity.
Choosing mid-cap stocks could be another strategy. The risk is they may be winners or losers in long run. You should exercise this strategy with caution.
Can we invest in mutual funds now?
Your mutual fund portfolio would have shown a dip of 5% to 10% in your investment amount during this stock markets fall. You might be thinking of exiting now and investing in bank FD or post office schemes hoping you would get at least 8% to 9% returns. This is the general tendency among the investors who would invest in mutual funds to make money, but finally they would lose and exit mutual funds and blame that they are not good for investments. Let us consider two scenarios under falling stock markets.
Scenario-1: You have invested in X mutual fund scheme. This mutual fund has invested in 3 large cap stocks. 3 Stocks are falling. Your mutual fund scheme would have exited from Stock no.1 and retained stock no.2 and 3. Blood bath completed, now markets are reviving. You keep pumping fresh investment. Stock no.1 has gained faster. But your mutual fund scheme has not gained much as it has already exited from stock no.1. So your mutual fund returns are growing at slower pace when markets are rising.
Scenario-2: You have invested in X mutual fund scheme. This mutual fund has invested in 3 large cap stocks. 3 Stocks are falling. Your mutual fund scheme has NOT exited from any stocks and retained all stocks. Your mutual fund investment value reduced by 20%. You keep pumping fresh investment. Blood bath completed, now markets are reviving. Stock no.1 has gained faster. So your mutual fund returns are growing at faster pace.
If you observe any of the above two scenarios can happen to your mutual fund investment. What do you see as end result? Returns growing at a slower pace or at faster pace. Means there are more chances that you would get returns, it is the question whether they are good returns or moderate returns. If you choose out performing large cap mutual funds or diversified funds, you would definitely win.
Can we invest in gold now?
When I have written an article about investing in gold during Mar-13, the gold prices were at Rs 2.8K / 1 gram. My recommending was to keep investing through SIP / SEP regularly. It has fallen to Rs 2.5K / 1 gram within 2 months. Several investors posted saying what to do. My recommendation was to continue investing for each and every dip. Now gold prices climbed to Rs 3.2K / 1 gram. Should you invest now? My answer would not change even now. Every time there is fall in stock market, gold prices would go up and vice versa. I am observing this for several years. Keep investing every month through Gold ETF’s to avoid any market volatility. Your objective is not to make money in short term. If yes, stay away from this.
Bank fixed deposits / RD’s
Investors think to pull money from stock markets and put them in Bank FD. Even I have done similar things in the past. This is the time where you need to break your FD/RD and slowly start pumping your money into stocks and mutual funds. You should consider the risks involved in this before doing it.
Conclusion: I am not saying put all your money in stocks now. What I am saying is to utilize this opportunity and invest in winning stocks. You should start accumulating such stocks to keep them for long term.
Readers, what are your experiences in falling markets? Have you invested in such market scenarios. What worked well and what not?
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Stock Markets falling-Where to invest now