With markets at record highs and valuations excessive, many investors are raising a relevant question: Is this the time to sell? This question is pertinent since the Nifty is up 132 percent from the March 2020 lows and investors are sitting on handsome profits. Those who invested after the March crash are sitting on bumper profits. Taking some money off the table is always a good idea. However, whether an investor should sell, hold or buy would depend on many factors, most importantly, on the financial goals of the investor. Let me explain.
Suppose you have been investing in the market with some specific goals like raising part of the money to buy a house or buying a car. If your investment has grown to meet your goals, it is perfectly fine to sell. If the goal is buying a house, sell your investment to raise the money for down payment, go for a home loan now available at around 6.5 percent and realise your goal. The same logic applies for an investment made to buy a car or a similar financial goal. Sell and realise your goal. After all, money is a means to an end, not the end in itself!
Let’s take another example. Suppose you are an investor who has been planning for retirement through SIPs in equity mutual funds. If your retirement is, say, five years away, you need not rush-in to sell now. We will have many corrections in the market, going forward, but the market would be substantially higher after five years than where they are now. So, the right strategy would be to remain invested and continue to invest systematically.
Now, let’s come to perhaps the most important financial goal. If your goal is to participate in the wealth creation through the stock market, the strategy should be to remain invested and even buy systematically. It is important to remember that the biggest wealth creation is happening through the stock market. In India, the Sensex (1979=100) has multiplied 580 times during the last 42 years giving a CAGR of more than 15 percent, beating all other asset classes by a wide margin. This outperformance will continue in future too. Therefore, to participate in wealth creation, it is important to remain invested and to invest systematically, irrespective of whether the Sensex is at 56000 or 58000 or above 60000. Disciplined systematic investment is the key to wealth creation.