Nifty at 20K | Sensex at 67K | How to Invest at New All-Time Highs?

Indian markets are hitting a new all-time high. At the time of writing this post, Nifty 50 was at 19,979 and Sensex was at 67,571 (on 20-July-2023).

And those who had the cash and courage to invest in times of crisis (in March 2020 when Nifty50 made a low of 7610), their investments are already up more than 160% at index levels in little over 3 years!

While all-time highs bring joy of rising portfolio values, they also bring a bit of worry. What if this is the top? What if markets fall from here? And that is the biggest issue (or facepalm things) with stock markets. As Ben Carlson says in this old piece (link) – One of the hardest parts about investing in the stock market is there is always something to worry about. This is true even when things are going well, as they are now with markets at or near all-time highs.

But All-Time-Highs aren’t that rare. At least for growing economies like India. They can be scary for a few, but they are normal. And I know many investors may be wondering now whether to sell and book profits now (and try to re-enter later if and when markets fall) or continue with their systematic investments or SIPs.

If you look at market data, you will notice that generally, all-time-highs are followed by new all-time-highs. Kind of getting higher and higher with momentum. Of course, one day it will be the final new high after which the market may fall or crash or whatever. But generally, markets making new all-time-highs doesn’t necessarily mean that markets have peaked and a correction is imminent.

Selling or sitting out (in cash) just because your dear Sensex or Niftry50 is setting new highs might be a mistake. Your investment decisions should anyways not be governed just by market movements.

So what should investors do now as markets continue to party and make new all-time highs? Should they sell or Stay invested or keep Investing more?

To be fair, nobody wants to leave the party when it’s on. Markets have been rising like there is no tomorrow. Making money from stocks seems easy these days. But this is a good time to take pause yourself and think longer. It is time to review. And if need be, take corrective actions.

What should you do Now at All-Time-Highs?

If you have different goal (investment) buckets for different goals as suggested in Goal-based Financial Planning, then you need to consider doing the following –

• If you have a short-term financial goal (3 years or less) and for some reason, you still have an equity allocation, then the recent run-up in the market gives you a good opportunity to book and lock profits and reduce the equity component of your short-term portfolio even further. Don’t be greedy and try to extract more returns from stock markets by trying to ride the wave till late.
• If you have a long-term financial goal (7 years or more) then it is possible that the rise in stock markets would increase your equity allocation. A small deviation from chosen allocation is still fine. But if it has become uncomfortably large, then you should rebalance it to bring the portfolio back on track.
• Suppose you have long-term goal where you have decided to have 65% in equity and 35% in debt. But due to markets making new highs, the equity allocation has increased. If it has increased by a small 5%, then there isn’t much to do. But if it has risen a lot and now your asset allocation is 80:20 in Equity:Debt, then this means that you now have a very different portfolio (with 80:20) than what you strategically decided (65:35). You need to rebalance now. So you got to sell a bit of equity and put the redemption proceeds into debt. This may sound stupid in a rising market but it will help reduce the risk in the portfolio by protecting the downside in case there is any short-term market correction in the near future.
• Also, when you are doing rebalancing (to reduce equity allocation), it is also a good time to weed out the non-performers from your portfolio. Rallies like these give the rare opportunity to get out of portfolio laggards at good prices. So might as well utilize it to clean up your portfolio too under the guise of rebalancing.
• And what about SIPs in equity funds? Should you still continue? The answer depends on whether your goal is still a long-term goal or not. If the goal still has several year’s runway left, then you can continue to invest systematically via SIP in equity funds once you have reviewed and rebalanced your portfolio (if need be). So don’t blindly stop your SIP just because markets have hit a new high.
• One more thing. Please don’t be tempted by rising markets and be greedy and make the grave mistake of using your emergency fund to invest. Never do that! Never invest your emergency fund in equities or stock markets no matter what. Remember, you may not think that there will be any emergency but emergencies don’t wait for you to have an emergency fund. And as Morgan Housel said – Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. So don’t dare touch your emergency fund to invest in markets!

So those were a few thoughts I had and wanted to share with you as the Indian markets are making new all-time highs in 2023. Remember that generally in the long run, the equities will trend upwards via an upward sloping line. So reaching new all-time highs, crossing them and then making newer highs is completely normal. Don’t worry and instead review your portfolio as we discussed above.

Disclaimer – This is just a general discussion for educational purposes only. The views expressed above should not be considered professional investment advice or advertisement or otherwise. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the likes and take professional investment advice before taking any financial decisions or actions which may have financial implications now or in future.