For God sake, don't time the market

They say when it comes to markets, timing is everything. But, the important question to ask is who are they?

“They” are ticker tracking traders and not retail investors. And, it’s best to leave the second by second tracking of markets and timing the markets to them. In fact, as per a report published in Business Standard today, instead of speculating, you should stick to a goal-linked diversified investment plan for long term debt.

Reasons why you should not time the market:

First, when you try to time the market, you expose yourself to higher risk. The story quoted, Pankaj Maalde, head - financial planning at Mumbai-based Apnapaisa.com. “There are many big and small factors governing the market movement simultaneously - national, international, political, geo-political and economic. One will never know which event/factor will lead the market which way. Sometimes, there are clear signals of an uptick but the stock prices fall. Why should one want to ride on unpredictability?” he asks.

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The gospel truth about market is that no one can time the market correctly. It’s simply impossible to know when the markets have reached rock bottom and when it’s at it’ zenith.

So, what should be your strategy:

First is to know the amount of risk you can stomach, which is your individual risk profile. Remember, what’s high risk for you could be low risk for someone else, especially if the other is a punter. Second, know your financial goal and the time frame within which you need to reach that goal. And, third, know that you can’t park all your eggs in the same basket, which means diversify, across different asset class. Read the whole Business Standard story here.

Firstpost Take: We agree with the Business Standard story on not trying to time the market and sticking to goal-linked diversified investment plan for the long term. We think, you could also look at-age based asset allocation. In fact, we would like to go a step further and say:

• If your financial goal is 0-1 years, investments towards that goal should be in debt instruments a 100 percent

• If your financial goal is 1-3 years, investments towards that goal should be 80 percent in debt instruments

• If your financial goal is 3-5 years, investments towards that goal should be 65 percent in debt instruments

• If your financial goal is 5-7 years, investments towards that goal should be 45 percent in debt instruments

• If your financial goal is 7 + years, investments towards that goal should be 20 percent in debt instruments

Disclaimer: The story aims to help readers with their money related decisions and choices. Each individual has his or her own financial situation and circumstance. We recommend that you consult a Certified Financial Planner before you buy a financial product or service.