Should You Worry About a Correction In NIFTY 50?
Honestly, it is impossible to predict if markets will correct from here, and it may not be the right approach to sit on the fence waiting for things to unfold. The main problem with this strategy is the possibility of the market not correcting. Even if it does, no one knows when it has bottomed out. In 2020, we saw how quickly the NIFTY 50 crashed and the record-fast recovery.
Further, while timing the market it is very likely that you miss some days when the markets rise. This can reduce your returns significantly. For example, say you were an investor in the NIFTY 50 index. And you missed 20 best-performing days between 1 April 2008 and 31 March 2022. Your returns would have been 8.11% against 11.06% had you stayed invested.
To put it simply, if you had a SIP during this period of Rs. 10,000 a month, your total returns would have been Rs 14.49 Lakh vs Rs. Rs 23.39 Lakh. The same outcomes could have been there if you had invested in NIFTY 50 Index Funds.
Missing these 20 days is also very probable since these are only 0.5% of the total trading days during the period
Through the above example, we can see that the odds are stacked against an investor when it comes to timing the market. Therefore, we are better off with a long-term horizon when it comes to equity instruments.
If you are still scared that markets may correct and the amount invested today will be destroyed, then let’s look at what can happen if you invest at current levels.
What Happens When You Invest At The Current Level?
For this, we have looked at 10 points in the last 15 years when the Market traded around its peak level (Starting 1st January 2008). The reason to look at this data is that the market traded around its peak level, similar to what’s happening right now, and there have been multiple corrections from those points. From the table below, we can see the returns earned by an investor on the amount invested on the respective dates, had the investor stayed invested.
The returns generated are way better than many other investment avenues or sitting idle on cash. Hence, even if the market corrects from here, your money invested at this point is likely to give you inflation-beating returns in the long run.
What Can You Do?
From the above examples, it should be clear that the best thing you can do is to avoid timing the market. There have been market crashes in the past, and every time the market has recovered and made new highs. However, this doesn’t imply that you should not take stock of your portfolio.
It is important to look at your asset allocation percentage and rebalance the portfolio based on the performance of different asset classes. Ideally, portfolio rebalancing should be done at least annually, and our equity exposure should align with our risk profile.
Conclusion
fear of a Market Crash can destroy an investor’s wealth, even if the actual Crash doesn’t. Hence, investors having a long-term horizon can continue investing in equity instruments and avoid timing the market.
