Market Corrections Are Like NY Resolutions

The recent market correction may have made you nervous. But there’s good news – it doesn’t last long! Just like your new year’s resolutions. Every year, countless people set new year’s resolutions, vowing to change habits and achieve certain goals. Yet, studies show most resolutions fade very soon. In the world of investing, stock market volatility and corrections share a similar story — they make headlines, cause momentary jitters, but often don’t last long.

Common as your birthday

Historically, stock market corrections are as common as your birthday – they come every year. The data point is, since its inception, the Sensex has corrected by 10-20% roughly every 12 to 18 months from its recent highs. Market corrections are common, necessary, and healthy as it smooths out technical indicators and lays the foundation for new all-time highs to hit. Without these pullbacks, markets would risk becoming overextended and unsustainable.

Don’t time the market

One of the most important lessons for investors is not to attempt to time the market. Your time spent in the market is more important than timing the market. The truth is – no one knows how long markets will fall or by how much. Similarly, no one knows when the market will recover and to what levels. Hence, timing often leads to missed opportunities. According to veteran fund manager and investor Peter Lynch: “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

Don’t wait to invest

Don’t wait to invest. Invest and then wait. The sooner you invest, the sooner your money begins to grow. The best time to invest is always now — as soon as you have funds available. Invest quickly and focus on staying invested. It’s smarter to focus on the long term. There is a bigger risk in staying out of the market (not investing your funds) than staying inside the market.

Focus on lumpsum, besides SIPs

The key to wealth creation is to start early, stay consistent, invest sufficiently, and stay invested in a mix of mutual funds and direct stocks. Apart from your ongoing Systematic Investment Plans (SIPs), it is necessary to make lumpsum investments when you have extra idle funds. By having a smart financial advisor at your helm, he will guide you to invest lumpsum money using special schemes and strategies. The key to wealth creation is – do sufficient SIPs, increase SIPs every 12 months, and do lumpsum investments whenever possible.

Moral

The rule is simple: invest quickly, wait, and let the market do its work. Stock market corrections will come and go, just like New Year’s resolutions, but your long-term success depends on how much time you spend in the market, not timing it.

(The author is a Chartered Accountant and CFA (USA). Financial Advisor.

Views personal. He could be reached on 9833133605. )