Markets are booming, what should I do?

Diya Thommy
Jul 27, 2017 · 3 min read

“We spent the rest of our holiday on another island. Our plan was to travel on to Puerto Rico — but when we got to the airport, the flight was cancelled. People were roaming about, looking lost. No one was doing anything. So I did -someone had to. I chartered a plane for $2,000. I divided that by the number of people. It came to $39 a head. I borrowed a blackboard and wrote on it:

VIRGIN AIRWAYS. $39 SINGLE FLIGHT TO PUERTO RICO.

The idea for Virgin Airways was born.”

Excerpt from “Screw it, Let’s do it — Lessons in life” by Richard Branson

Not everyone can turn a spur of the moment flight charter to a successful airline business. The same way not many can successfully time the market and become rich from it. We see the same signs every time the equity market booms — some hurrying to cut losses fearing the downswing, some greedy and diving in hoping to make a quick buck, while others are lost and unaware of what to do next. If you fall in the last category, all you need is someone to help you take charge again.

Success in investing generally hinges on long-term thinking. The more time your money stays invested, the more potential it has to grow. It’s simple logic and the power of compounding. As financial planners, we would advise you to invest systematically, come rain or shine. When investing systematically, you buy when the markets are both up and down, and the average buy price will balance it out.

We would also advise you to take money out only when you need it for something important. Otherwise you stay put and keep investing no matter what the market throws at you.

Having said that, booming markets do present some interesting opportunities and there are ways you can use these opportunities to cash in.

  1. It’s a good time to clean up your portfolio. Most of us who have been investing for a few years will have some stocks or mutual funds that we’re not happy with — either because they’re not doing well compared to their peers or because they’re ‘market losers’, pulling your portfolio down. When the stock market is soaring, it’s the perfect opportunity to sell such investments and minimize their damage.
  2. When market goes up, the equity portion of your portfolio would increase substantially. As financial planners we believe in the importance of maintaining the asset allocation that caters to all your needs, both long-term and short-term in nature. A booming market would be a good time to re-balance your portfolio — by selling a portion of your equity assets and reinvesting them into short-term assets like liquid mutual funds.
  3. Let’s say you have a goal or goals coming up in the next few months. And you don’t have cash in hand to provide for these goals. You can sell a portion of your equity assets and turn the notional profit on paper into real profits in hand, also called ‘booking profits’. If you have your goals mapped out, it would be simple enough to know how much you need, take that money out of your equity portfolio and stash it away in a liquid fund.

It’s easy to make mistakes when you do not have all the information you need to make a wise decision. Like knowing that you should only sell a share or an equity mutual fund after a year of purchase to avoid paying tax on your gains. Or checking whether there are any charges like exit loads during sale.

However simple our recommendations may sound, it takes considerable knowledge of the market and all that it entails to decide on the best course of action. If what you need is help making the right decisions in your investments, find a financial planner or adviser. We can help you get the most out of the money you make, whether the markets are booming or crashing around us.

As Warren Buffet so eloquently put it, “when you combine ignorance and leverage, you get some pretty interesting results”.

Northward Blog

Our goal is to inform and educate you on all things finance. To help you achieve your goals. We are Northward Financial Planners.

Diya Thommy

Written by

Financial planner. Avid reader. Novice blogger.

Northward Blog

Our goal is to inform and educate you on all things finance. To help you achieve your goals. We are Northward Financial Planners.

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