It’s always prudent to stay on top of the latest advances in the market. Knowing when to invest, where to put your money and how long to keep it there, isn’t just a skill. You have to follow trends in the market to get it right. Although your target should be long-term, a short-term re-direction is the need of the hour because stock markets are going through distinctive change.
Right now equities are not in that easy low-hanging-fruit picking zone. Most stocks are expensive by historical standards. Increasingly now, there’s a clear diversion between mid-, small-, and large-caps stocks. In the past few months, the divergence is getting more acute. Since January this year, the large caps have surged 1.5 percent via Nifty 50, while Nifty Small Cap 100 has been thrashed 16.62 percent, while Nifty Mid-Cap 100 tumbled 12.12 percent.
STAY WITH QUALITY LARGE-CAP FUNDS
An aggressive stock portfolio should not be the mantra for the next year. It means that you should be ultra conservative while investing in mid- and small-cap funds. Right now this segment of the market is going through a tumultuous phase largely because of regulations, and news of irregularities coming out from many of the small stocks. Further, exchanges have amped up surveillance measures on many small stocks. So your better bet is to stay with quality large cap funds.
No doubt, valuations are high here. At a PE level of 27, large-caps are not inexpensive. Mid-caps are at 57 PE. This gap will narrow now as investors will not like the uncertainty. Moving out of mid-caps and into large-caps is the way to go.
USE LIQUID FUNDS IN YOUR RE-JIG STRATEGY
To make your stock market investing more efficient, try a swing strategy that combines liquid funds and large-cap funds. Liquid funds are short-term arrangements that hold government bonds and overnight bank paper, which means you can easily move in and out of these funds whenever you want, much like a savings account.
Large-cap fund investing requires patience. This is because a significant part of investing involves putting faith in future performance. It can be easy to miss out on huge potential returns if you are impatient. Large-caps can get topsy-turvy. So you have wait it out for your opportunity to get in.
That means putting money in liquid funds for now, and waiting for the markets to give you an opportunity to invest. Large cap stocks, dividend stocks, blue chips are all good choices.
NEXT IS ADVANTAGE BALANCED FUNDS
If you don’t want to get caught on the wrong foot of market timing, a balanced advantage strategy is a very good option for newer mutual fund investors and other professionals such as doctors, and lawyers. These are funds that typically move out of equities when they get too expensive, and move into equities when they fall lower.
Buying at the right price is the all-important element in any investing strategy. But timing the low-entry points or exiting at the high points is not easy and even seasoned pros find it tough to find that entry point. So, if you park your money regularly in balanced advantage funds that are able to increase or decrease allocations as per the market prices, then you are doing nearly as well as many seasoned pros in the long run.
