This question is relevant since nifty It is up more than 130 per cent from March 2020 lows and investors are sitting on good profits. Investors are getting bumper profits after the March crash. It’s always a good idea to take some money off the table. However, whether an investor should sell, hold or buy will depend on several factors, most importantly, on the financial goals of the investor.
Let me explain
Sell ​​to achieve your goals
Let’s say you are investing in the market with some specific goals like raising some part of money to buy a house or buy a car. if your Investment To meet your goal has grown, it’s perfectly fine to sell it. If the goal is to buy a house, sell your investments to raise funds for the down payment and go for home loans available at a historic low of around 6.6 per cent to achieve your goal. The same logic applies to investments made to buy a car or similar financial goal. Sell ​​and realize your goal. After all, money is a means to an end, not an end in itself!
Selling for conspicuous consumption?
think twice. It is important to differentiate between the achievement of a financial goal and the fulfillment of a wish. An investor can say that he has made a special investment to buy an expensive car or studded jewelery and is now selling to fulfill that desire. This is absolutely right from an investor’s point of view. But it may not be a good investment strategy. Many investors have expressed regret over the premature sale to satisfy a desire, especially conspicuous consumption.
Let’s take another example. Suppose you are an investor who is planning for retirement through SIP in Equity Mutual Fund. If your retirement is five years away, you don’t need to rush to sell now. In the coming time, we will see many corrections in the market, but after five years the market will be much higher than where it is. Hence, the right strategy would be to stay invested and continue to invest systematically.
stay invested to create wealth
Now, let’s come to perhaps the most important financial goal. If your goal is to participate in wealth creation through the stock market, the strategy should be to stay invested and even buy systematically. It is important to understand that the greatest wealth creation is taking place through the stock market and that fortunes are being made by holding good quality stocks for a long period of time, during which time they become multibaggers.
reduce portfolio risk
Since valuations are rich and the market is expected to recover sharply, investors can hedge portfolio risk by selling stocks that are stagnant without any fundamental support, especially in the midcap and small-cap space. Now, security is in high quality largecaps. Also transfer some money to fixed income.
In India, the Sensex (1979=100) has multiplied 600 times during the last 42 years and delivered a CAGR of over 15 per cent, beating all other asset classes by a wide margin. This good performance will continue in future also. So, to participate in this wealth creation, it is important to stay invested and invest systematically, even if the Sensex is at 58,000 or 60,000 or 62,000. Disciplined systematic investing is the key to wealth creation.