Darkness before the Dawn

The global markets have been volatile since the start of August 2011 triggered by US rating downgrade and the crises in the Europe.  The Indian markets have also followed the global markets albeit with less severity but we are better off in comparison with other markets in developed as well as developing economies.

Is it a time to exit from equity markets?  Or should one use this as an opportunity to purchase stocks which are available cheap?  Or should one wait and let the market fall more and buy at the lowest point? 

Bachhat has always suggested equity investments as a long term investment avenue for wealth creation.  Hence in case you have invested in equities with a perspective of 5, 10 or 15 years, the current fall should not matter you much.

One cannot say that I shall wait and buy after the market falls to its lowest point.  How will you come to know when it has reached its lowest point?  

It is impossible to time the market and one should always resist from doing so.  Even the experts managing billions of dollars world over are not successful in timing the market.  Hence there is no point in waiting to let market fall to its lowest point and then investing.

If you are a long term investor, the present conditions are an opportunity for you to step up the equity investments.  You will be able to buy stocks at lower P/E multiples (Price / Earnings multiple).  Even if market remains low for say next one year, it gives us an opportunity to invest more funds in the equity at lower valuations and reap the benefits as they rise in future.  As Mr. Prashant Jain of HDFC Mutual Fund wrote in his latest report, ‘it is always darkest before the dawn’.  The report is a must read for all the investors. (Link) 

To sum up, do not stop your SIPs in equity funds even if the market is falling.  On the contrary, if possible top them up with additional purchases and grab the opportunity available.  You shall smile your way to bank in the future. :)

Happy Raksha Bandhan and Independence day! :)  Wanna gift a SIP to your sister on this Rakhi?