Nuts & Bolts of Cashing the Stock Market Gains
Triumph in timing the market
This incidence may give this client or anyone reading this, an impression, that timing the market is as easy as breathing and a good shot. But that’s not right. The market is unpredictable and no one can time it perfectly not even any scholar. It can be accepted as a one-off instance. It won’t be ethical to expect same returns from investments in the future.
Score on the flourishing days of the market
Trying to time the market, the possibilities are failing to experience the best days of the stock market gains. Glancing the long-term perspective, missing a single day gains will deprive one from the benefit of compounding of the missed returns.
Redeem at reaching goal
Equities are meant for a time horizon of at least 5 years or say 3 years in today’s market scenario. Never invest if one will need the money before the time period. One should stay invested throughout the tenure and avoid making unnecessary transactions. You will gain maximum benefits from equities if you stay invested for a longer time period, as you get to benefit from compounding.
A must asset-allocation Strategy
Having a planned asset-allocation scheme assures an investor to book profits in a systematic manner. Apply a rule for rebalancing, be it at the end of financial year or as the allocation diverges by more than 10% of the planned ratio.
Try for a SIP not lump sum
Anyone should spread the investments over a period of time especially in case of equities. Investing systematically through an SIP or STP helps in entering the market at the right time, as the purchase cost is averaged out.
Points to Focus
Emergency fund: Preserve the funds equivalent to at least six months’ expenses either in a liquid fund and sweep-in deposit which can be handy during uncertain scenario.
Life insurance: Cromulent life cover is important specially term plans if one has financial dependents.
Health insurance: Owing to 2020 uncertainty, adequate health cover has become vital for the family.
Should you cash out of the stock market?
When the stock market falls, it is only a paper loss but actually, no monetary loss. However, the moment any investor converts stocks to cash in this period, one turns paper loss into an actual one. Investors should know that the cashing out will not give you the chance to benefit from market rebounds. A market uptrend can give you the scope of a break-even if not the opportunity to profit. If you cash out, then there is no hope for sure. As Inflation also has a devastating effect by eroding the value of money and reduces its purchasing power.