Nifty at 16,500! Where to invest when markets are high?

“We cannot time the markets; we can only decide how much time we stay in the market. Be it a novice or an expert, we can only guess where markets will be tomorrow or day after but can’t really make an actual prediction,” says Shweta Jain, certified financial planner, founder, Investography, and author, My Conversations with Money. 

So, if you have surplus cash lying in the bank, it is always advisable to get invested, mostly because of two reasons.

Money lying idle gets spent

First, money kept in the bank gets invariably spent on items you don’t even need. “You ultimately lose track of where the money went. And worse you get used to spending every penny you have,” says Jain who has also authored the book “My Conversations with Money”.  

The ugly truth has come out, more so during the ongoing Covid-19 pandemic. People with six-digit pay packages didn’t even have funds to last them even a few months without their monthly income, she adds.

In the long-term market will always perform

Second, in short term, it is impossible to time the market. “In the long run, however, the markets will always perform,” adds Jain.

Explaining it further, Kalpen Parekh, MD & CEO at DSP Mutual Fund, says, “Markets are rarely high when you visualise them today, in comparison with the future, say 10 years later. We invest for the future levels of markets. The nature of the market (especially in a developing country like India) is to rise with few temporary falls in between.”

“Hence market highs shouldn’t delay our regular investing. Do businesses stop functioning because their stock prices hit highs? Do promoters sell their companies when their companies earn higher profits,” Parekh asks.

So, how much to invest when markets are high?

Hedging is important, “but timing the market with your whole portfolio is a pointless exercise”, feels Abaneeta Chakraborty of Abanwill Consultants LLP.

“If one looks at investment as a wealth-creation journey, then one should always be investing. I can imagine keeping cash stacked away to take advantage of a crash, but that should not be more than 30% of investible surplus,” she says.

Which are the best investment options when markets are high?

Unfortunately, high equity markets often correspond with low interest rates so it’s never a good time or a bad time for any one asset class, says Abaneeta, adding “Be invested in equity, gold and fixed income at all points; depending on your initial asset allocation strategy.”

Kalpen further suggests, “At such extreme highs (which occurs once in a decade), we can invest in defensive funds like dynamic asset allocation funds/ funds that have some amount of safety cushion of fixed income – like equity and bond fund or equity savings fund and can also look at gold for some diversification.”

Adding to the thought, Shweta advises, “Set aside 20 to 40% of your money in liquid assets so that when you need the money it is available. Invest the rest in a disciplined manner.”

So, don’t think about beating the markets, rather think about your goals; and wait for your investments to perform better. “As an investor, we must behave like business owners and continue to invest if our time horizons are seven-year plus,” concludes Kalpen.