Last Saturday, I was addressing a gathering at Chennai trade Centre. During the question-and-answer session, many people asked me whether it is a good idea to move all the money into equity or keep some in other investments, such as real estate, gold and fixed deposits, which are not delivering good returns.
Also, several people wanted to know if the stock market equity bubble is growing.
It is always difficult to answer a question on allocating assets to a gathering of 600 people. Each person’s requirement is different and is tailored to that person’s income, expenses, appetite for risk, the years he or she will be earning, the goals, and expected return.
But a one-line answer could be that if your goals are more than 3 -5 years set aside 50:25:20:5 in equity, debt, real estate and gold. For a more appropriate answer, discuss it with your investment advisor.
Turning to the second question, about the bubble in the market. To be precise, no one will be able to say when the market will correct. Bubble is big word and most of the time we miss the real meaning of it. In equity, bubble is similar to water bubble. Even when it bursts, it will fall inside, and not like a soap bubble that it vanishes in thin air.
If you had invested in 2008, when the market had peaked and then corrected drastically, if you had invested in large cap funds, now your returns could have been 8-12.5% – remember it is tax free! Same for the mid- and small-cap funds, although some of the mid-cap funds corrected by 60-70%. At least a dozen funds delivered 12-14.5% returns.
Investments with market risk
So, if you are concerned about the market and if you have earned a return beyond 20-25%, there is no harm in booking profits. But do continue your SIPs. For fresh investments, invest in liquid funds and do a systematic transfer plan for 4-5 months just to spread the risk.
If you believe that the Indian economy will grow over the next 5-10 years and the market corrects, it will be a water bubble and not a soap bubble. Although there will be some damage, you will still be able to earn a decent return.
Take your profits and rebalance your portfolio.
What is a big risk……
Biggest risk, for investors with a 15-year-goal face, when investing in debt; for those with a one-year-goal, it is investing in equity.
So,understand the requirement and invest accordingly.