With the markets at all-time highs, wondering if it is better to sit on cash? We think otherwise and here’s why.
Are you looking at the market levels and re-thinking whether to add more to your equity investments? Undoubtedly, with the Nifty 50 at over 16600 (and nearing 17000), one begins to question the merit of incremental returns from here on. You may feel it’s better to sit on cash rather than invest now. Better to wait for a correction and lower prices, right?
It’s possible that lower levels in the market might come along for a better buying opportunity in the near future. They did correct briefly (around August 16th-20th, 2021) thanks to a price correction in small and mid-caps. However, when you consider your investment from a ten-year perspective, it changes how you are likely to act.
If you have the incremental cash flow to invest in equities or if you have booked profits and are waiting for better levels to enter the market, here are some reasons why you should not.
1. Money lying idle, usually finds another purpose
Market levels are not in our hands, it could take weeks for the benchmark index to correct or it could correct in a matter of a few days.
If money is lying in the bank account in wait for being deployed usually it either gets spent on consumption or gets invested in some other immediate opportunity.
The problem with the former is that you don’t create wealth, in the case of the latter the investment opportunity may or may not fit in with your overall portfolio objective. Usually, the reason for going with a different investment is because of return, without a thorough analysis of the risks involved. It’s our need to make an immediate return that pushes us towards the best return option rather than waiting for the opportunity we are seeking.
2. Later versus now is an expensive proposition
Let’s say you invest the money immediately but in a staggered manner through scheduled systematic monthly investments and your investment horizon is 20 years. If you delay this start by 10 years you will have to shell out over Rs 1 lakh a month to make the same corpus in the remaining 10 years!
You have to invest 4 times more for the same result if you delay your investment by 10 years.
If you delay the investment by 1 year, you still have to shell out roughly 16% more each month to achieve the same result in 19 years. Delaying your investments in equity assets is more likely to cost you in the long run, rather than accruing any major benefit from waiting for a correction.
3. It’s impossible to know what will happen
All the cost-benefit analysis aside, it is practically impossible to judge with consistent accuracy how the market will behave in the short term.
It is a lot easier to analyze performance in longer chunks of time like five and ten years. Investing in equity assets of a growing economy will produce proportionate returns over time.
The cost of leaving your money in the bank account is much higher than investing now and catching the wrong end of a correction. If you invest patiently and regularly, over time the results will speak for themselves.