Mutual Fund Investing: Should Mutual Fund Investors Buy More Now?
Mutual fund advisers say many investors, especially new investors, are still hoping for a repeat of the market scenario soon after Covid hit the world. Even as everyone braced for a long bear market, markets rebounded. Additionally, the market has started climbing all-time highs. Many investors believe that the current situation may improve soon and the market may recover soon.
Maybe they are right in their prediction. But they can also be terribly wrong. This is the problem with all market forecasts. That’s why we always start with an appropriate investment plan. One of the important decisions we make is to invest in equity mutual funds only to achieve our long-term financial goals. The basic idea is that even if things go wrong in the market, we have enough time to recoup the losses.
Aren’t we also saying don’t change your investment plans based on market conditions? Again, this saves us from having to wonder about short-term market trends. For example, the market fell over 2,000 points yesterday. Should you decide if you should sell your investments to protect your wealth? The problem is that we don’t know for sure if the market will go down further in the next few days.
If so, how can we be sure to buy more? As said before, there is no way to know the future evolution of the market. Of course, everyone makes educated guesses. But these are just guesses. The market could fall further. So what will happen? Would you buy even more? You should have endless resources to buy more after each market drop.
This is why it makes sense to have a predictive formula when it comes to investing more in stocks. For example, you may decide to make additional investments if the market drops by 5% or 10%. You also need to remember that this is a tactical allocation you are trying to make to maximize wealth. Money should be invested for the long term. You should not try to make short-term money by deploying the money you need for short-term needs. If you do this, you are trying to time the market. And most of the time, these stunts often lead to losses.