“Be fearful when others are greedy and be greedy when others are fearful” is Warren Buffett’s mantra for winning the markets. Buffet believes that to make windfall gains in the Share Market, going against the majority is the way. When markets are high, and everyone is cheerful (and greedy), it is time to slow down and be fearful or considerate in your decisions.
But what to do when Stock Market soars? Here are some things you should remember:
Stick to your plans:
As the market touches new highs every day, you might want to stray from your asset allocation plans and take a detour to high return avenues. However, the detour might bring plenty of risks if the market suddenly turns volatile.
Invest in Mutual Funds:
As the market rallies, individual stocks’ valuations cango sky-high. In such cases, the margin of safety narrows. To safeguard yourself against such scenarios, choose your Mutual Funds carefully. Invest in schemes that have performed well in both bear and bull markets.
Do not over-diversify:
You might want to invest in all the securities seemingly touching multi-week highs daily, but remember, greed is not the way to go. Adding schemes left and right to your portfolio will not help you battle the market risk or add value to your portfolio. Over diversification can eventually be counterproductive for your wealth creation plans.
Avoid timing the market:
When the Share Market today touches a new high, it can be the last. Every new session can end the bull rally and bring about the bears. Gripped with these fears, you might not want to time the market and enter accordingly. If you do,it lowers your overall returns. Remember, the way to win the Stock Market is by investing long-term, regardless of the market condition.
Avoid emotions:
Avoid letting emotions influence your financial decisions. Stock Markets are volatile, so always maintain a long-term view than getting swayed by market segments. For example, while choosing Mutual Funds, research thoroughly by reading scheme-related documents, asset allocation plans, and portfolio composition, among other things.
It should not matter whether the market is notching lifetime highs. Your financial decisions should always be weighed by your objectives and financial plan, not by the overall mood of the market.