Is this the time to stay put or should you tweak your savings and investments?

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By Dhirendra Kumar

A month ago, when the immediate crash in equities was the deepest, I did not expect that by the beginning of May, I would be writing warnings to investors against getting too optimistic and enthusiastic. Over the decades, I have seen the equity markets do many weird things but the rise in stock prices during the month of April is probably the strangest.

It’s pointless to say that the March crash was overdone and therefore, the April rally was due. My answer to all such logic is to ask the counter question, “How would anyone know?” By now, it’s utterly self-evident that we are in completely uncharted waters at every level— from a small neighbourhood business all the way up to the global economy.

Even so, as I look back upon what I have been writing over the last two months and on how readers have responded to it, I can see that there is an apparent element of selfcontradiction in these pages. On the one hand, I have said that there are many great businesses that are now reasonably priced on the equity markets. Investors who have SIPs running and do not need the money for a few years should continue their SIPs. In effect, that means that they can continue to invest.

In sharp contrast, my last week’s column spoke about the virtue of not doing anything, citing the example and the pronouncements of no less hallowed a figure than the great Charlie Munger. Despite $125 billion in cash and assets at rock bottom pricing, Warren Buffett and Munger are sitting on their hands. Nothing is tempting them. As Munger says, “This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.” Who could disagree with that?

So why exactly should one do anything at all. I would say that some categories of actions do not fit into this do-nothing framework, but they are very specific. As I said above, SIPs into equity funds where you will not need the money for a long period of time is one such thing. Here, not acting means to let the SIP run and continue investing. The reason long-running SIPs are a special case is that it is precisely in such times that SIPs set you up for future gains. The entire logic of SIPs is that when equity prices are down and out and NAVs are low, then the fixed monthly amount will get you a lot more units. When prices eventually recover, then that is what will get you outsized gains. Stopping SIPs when markets crash gets you the exact opposite of that. Don’t do that.

However, there’s one more class of actions that make sense, which is to make corrections to investing mistakes that you may have made in the past. For example, you may have too much money in equity funds. Some of this money may be needed within the next year or so. Or, you may have neglected to keep emergency funds in hand. Or, just the general sense of crisis may have made you realise that you have slipped up on term insurance or health insurance or some such basic requirement. It’s imperative that you fix these problems sooner rather than later, even if that means some disruption to your longer term plans.

A lot of people have realised the value of gradual exit from equity in the last few weeks. Savers had saved and grown money over years in equity funds for expenses that they had planned for 2020 or 2021. The right thing to do would have been to start an SWP 2-3 years ahead of time so that there would be no nasty surprises at the last moment. If you neglected to do this and have money in equity funds that you need in the next 2-3 years, then redeem it now. Consider yourself lucky that we have had this little bump during April. Don’t push it any further. Only money that is really not needed for longer periods must stay in equity or equity funds.

(The author is CEO, Value Research)

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