When Should You Invest in Equities and Exit Out of the Same?
Last Updated : March 9, 2022, 4:29 p.m.
Did you know you can enter the 1-crore club before retirement? Yes, making equity investments from your first salary can help you ensure so. All it takes is some astute planning. You can either plan with your investment advisor or do it yourself. Also, you can invest directly in stocks or through mutual funds which are supervised by professional fund managers. These investments often lead to double-digit returns for investors over the long term.
But most of us fear when we lose money because of the sharp volatility due to developments such as the ongoing Russia-Ukraine war. The fear is natural, but exiting because of that only is not right! Historically speaking, markets have recovered from such blows and yielded sharp gains for investors who continued to invest at such times. However, there are times when you need to exit too to protect your hard-earned money. Knowing the right time for entry & exit is thus vital. Let’s figure out the same.
When Should You Make Equity Investments?
Investing from your first salary will allow you more time to accumulate the corpus for retirement and other goals. The key is to choose the right stocks based on their performances spanning five to ten years. Let’s check all these in detail.
How Will an Early Start Help You?
Assume you begin your professional life at 25, you will have more than three decades to build a corpus for you. Even if you start with a monthly investment of INR 5,000, you could accumulate around INR 1.76 crore when you’re 55. We’ve assumed the return rate of 12% per annum when calculating the corpus.
Why Stay Invested Despite Market Fluctuations?
Returns of equity investments fluctuate based on the performance of the companies whose stocks you’ve bought, the overall macroeconomic condition of the country, etc. The weak buying sentiment in a particular sector of the economy can even affect the stock rally of fundamentally strong companies. In such a case, wait for a while. The stock prices will rise because of their fundamental resoluteness.
Let’s go back to March 2020 when the stock market was plummeting because of COVID-induced disruptions. But soon, the market recovered and touched 60,000 in mid 2021. So, it’s all about choosing the right stocks aligned with your financial goals. The rest will take care of itself. Also, during market downturns, you could buy quality stocks at a much lower price. And when the market goes up, such stocks would rise faster than expected and help you make sharp gains.
When Should You Exit Equity Investments?
Exiting equity investments makes sense when you’ve accumulated around 80-90% of your goal corpus. That’s the time you should exit and put the accumulated sum in bank deposits. Doing so will help you prevent your corpus from any market fluctuations going forward. Also if the profitability of the company has been declining for years, its stocks may have been falling too. You can thus offload money from such stocks and put the same in the performing ones. Liquidity needs can also arise with time. You can thus withdraw some to meet such needs.