Market is at an all-time high. Should you invest now or wait?
The most frequently asked question today
Because of intelsense.in stock research services and also the relatively new PMS, I get the opportunity to interact with a multitude of investors. The most common question I get is “Market is at an all-time high. Should I invest now or wait?”
My answer is always the same. If you have excess savings that you don’t need for the next two-three years, the best thing to do is to invest in businesses.
Markets Trend Up Over Time
Below is the monthly chart for Nifty since its inception. You can see that except in a few instances where the market has corrected sharply and then subsequently rebounded the market has largely been in an upward trend.
Wealth Creation
Take a look at the Forbes list of billionaires. See anyone who has made it there on a salary? Likely not. People get wealthy by investing in appreciating assets. Those assets could be physical like gold, silver, diamonds, mines, land and real estate or they could be ownership in businesses. Very few people can get wealthy by renting out their time to an employer.
The easiest way for people to own businesses is to invest in a diversified portfolio of stocks. That can be done through mutual funds, ETFs or direct stocks.
Market Timing
It is very difficult to be able to consistently time the market and get in before a big rise and get out before a big fall. The most practical option is to remain largely invested based on your ability to stomach a market downturn. And that leads me to my thumb rule of not investing money in equity if you would need it in the next three years.
As per some studies, if you invest with a one-year horizon, it is approximately a 33% probability of losing money. If you invest with a five-year horizon, there is approximately 8% probability of losing money. If you invest with a 10-year horizon the probability of losing money would be approximately 3% and if you invest with an over 15-year horizon, there would be an approximately 0% probability of losing money.
In general, even if you are unlucky and invest today and the market crashes, history says that you have a decent probability of getting even if you have a holding period of over 5 years.
Pros and Cons Now
First the positives:
India is in a sweet spot now with global flows coming in as FDI and FII.
The global news coverage has become positive with India increasingly being discussed as one of the main alternative investment destinations in the “China+1” world. Mexico, Vietnam and India are the main contenders for replacing China as a major manufacturing source. Also, given the size of China’s manufacturing base, it will take many years or decades for this theme to play out.
The domestic economy is improving with inflation cooling off.
Interest rates look to have peaked.
Oil prices are moderate and have not spiked.
We are in a pre-election year, which sees large investments in infrastructure spending. This typically boosts growth.
And the negatives:
A large per cent of the population is dependent on monsoons for livelihood and we are still unclear on how the El Nino effect will impact agricultural income this year.
Oil and Food - the two biggest components of our inflation are beyond the control of monetary policy.
The rural economy is still not out of the woods post the pandemic. Erratic monsoons this year may add to their woes.
With a very large young population, job creation is not keeping pace with the requirements. This can have potentially harmful long-term implications with the demographic dividend turning into a demographic disaster.
Way Forward
As I mentioned earlier, if you have cash which you do not need for the next three years, consider investing now. No one knows what tomorrow will bring. If you are investing in equities, be prepared for a 10-20% drop at any time. But looking at how things are shaping up, the next few years are looking good. Continuing with investing in a sip mode can actually deliver good results.
Media Interaction
I discussed some of these points today.
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Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
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