I have been advising clients on capital market investments for over fifteen years and one fact that has remained consistent through the years is while we all try and time our entry to perfection – adopting strategies like SIPs or STPs, we rarely ever give fund exits a thought.
Our exits are usually decided by a violent fall in the market. Why is that so? What are the triggers that should define when to exit a fund partially or entirely? Let us understand these.
Most investors err in taking a conscious decision on fund exits because they are investing without aligning goals to their investments. Imagine this. You have a child who needs to go to college in ten years from now, and you started an investment for his education in 2018. What would you do after 24 months of underperformance of the market? Would you sell your investments, albeit at a potential loss? The answer should be an overwhelming NO!
You must consider the fact that the education goal is still eight years away – and this is not the time to sell that particular investment irrespective of which way the markets are headed. Instead you should remain invested until that child is eventually ready to go to college. No equity market can remain depressed for a decade and one must understand the virtue that is patience. It is very easy to lose faith in the equity markets, and even easier to, in your advisor – but you cannot lose focus on your individual financial goals.
All investments should be linked to your goals and that should remain the first and all-important trigger to exit your investments. Other factors that could trigger an exit in your investments could be in case of a sustained underperformance in your funds or there is a need to rebalance your portfolio if these are not fitting into your current or future risk appetite. In such a case you will need to exit even if the fund is doing exceedingly well. We need to learn not be greedy in the equity markets and follow a disciplined approach to what is a scientific process – one of investment advisory.
As always, I’ll look forward to receiving your feedback. Until the next time! Anirudh