Money Plants

Tuesday, February 14, 2006

Sensex at 10000. What to do?

The markets are euphoric. 10000 and still counting. You need to read this post if:
1) You have already invested in the markets (since I am not a stocks person, I am assuming you have invested through mutual funds)
2) If you are planning to invest
3) You are not planning to invest

Ya, so basically I have not left out anyone here :-)

Let's take it case by case, starting with those who have already invested in the markets. Take this quiz:
Why have I invested in the markets?
a) To make quick money
b) To accumulate funds for a house I plan to buy this year
c) To build wealth for retirement

What will I do with the money if I sell now?
a) Blow it up on some indulgences
b) Use it to fund my house
c) I am not selling

If you answered both questions in (a), then don't even bother reading ahead. You are using the markets to make a quick buck and that is not what the Money Gardener believes in. Money Gardener has always talked about long term wealth building and that will happen only if you allow your funds to grow over a long time.

Equities should not be gambling dens. Equities, when used wisely, will give the best returns over a longer term of 7-10 years. Markets are at all time highs now, and a short-term correction is inevitable. But over a long term, the markets will just continue to grow.

If you answered both in (b), then this maybe a good time to book some profits. After all, it is important that you don't lose the money you have accumulated for your home. Markets are at all time highs and nobody is able to tell if it will go up further, if so, how much and if so, when.

If you answered both in (c), you are a winner. Just hang on there and the results will show.

What if you haven't invested and are wondering whether you should start doing it now? Time to introspect. Why are you investing?
a) Because everyone else seems to be making money around me
b) Because I need to build wealth

How long will you hold on to your investment?
a) For as long as it takes to make some great profits
b) For at least 7 years

At the risk of sounding repetitive, let me tell you how you fare. If you answered both questions in (a), don't bother investing now.

If you answered both questions in (b), go on and invest. It does not matter at what levels you enter the markets because you are planning to hold on for a long term. Over 7-10 years the sensex could go up to 15000, then fall to 7000 and then rise again to 12000. So patience will pay off.

A tip: Invest through a systematic investment plan.

Now if you were too scared to put your money in equities, I suggest you overcome that fear. Markets are risky in the short run but great for the long run.

So start putting in a little money every month and watch your investments grow over the years. Don't get jittery if there is a small fall. Falls happen. But falls are followed by rises.

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