Dev Ashish
Are you also worried about starting or stopping your SIPs (systematic investment plans)? I have seen this behaviour often in many investors.
They have large existing portfolios and instead of worrying about rebalancing their holdings, they are more bothered about starting or stopping SIPs which are worth just a few thousand rupees. It is like missing the forest for the trees. Also, it’s a very common mistake amongst investors
Why do I say so?
Taking the right investment decisions
Let’s take a small example to understand this.
Suppose, over a period of five years, you have been doing a monthly SIP of Rs 25,000. That is, you have made total SIP investments of Rs 15 lakh, (i.e. Rs 25,000 x 12 months x 5 years). Now due to a rising market over the last few years, the value of your investment has increased to, say, Rs 30 lakh.
Now you are worried that the market will fall soon (as it has been rising for long). As a result, you are worried and want to take some corrective action.
You are contemplating whether to stop the SIP for some time or continue it as it is. This isn’t a wrong thought to have. But a more important consideration that you should have at this point is whether there is a need to make changes to the accumulated corpus as well.
Why?
Because it’s not just the fresh SIP money that will be exposed to market volatility. Your existing corpus, which is much larger than the SIP money, is also exposed to the same market volatility.
Let’s say that after the initial bull run of five years, markets have a tough year and fall 30 percent.
If you had only worried about stopping your SIP, you would have saved the fall in the value of your SIP investments. But the existing corpus of equity funds (of Rs 30 lakh) would have taken a hit and fallen down 30 percent to Rs 21 lakh.
So, you were worried about saving the Rs 25,000 SIP (i.e. Rs 3 lakh in fresh investments over 12 months). But your existing portfolio in the meantime fell by Rs 9 lakh. And isn’t this drop in value of the existing corpus is much more worrisome than the next ‘Rs 25,000’?
Worrying about smaller amounts
Many investors make this mental mistake.
They worry about the next SIP, while their existing (and much larger) corpus is exposed to the markets. And given the bigger size, you already know which should hold priority.
This is why managing the existing corpus is much more important than just worrying about what to do with your SIP next.
So, how do you manage the existing corpus better?
Your best bet is to rebalance periodically. Rebalancing is a powerful tool to manage the risks in your existing portfolio. If the goal is nearing completion (such as managing the retirement kitty when retirement is just a few years later), having some sort of portfolio de-risking strategy is also advisable.
Remember, unless you are just starting, your monthly SIP will be a very small percentage of your overall corpus. So you should have a look at your existing portfolio and make sure you give it the importance it deserves. After all, it’s your hard-earned money that you have accumulated over the years.
(The writer is the founder of StableInvestor.com)
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