Sensex and Nifty are reaching new highs. This means that we are currently in a bull market phase. Bull market is a timespan when there are extended periods of stock market gains.
Surely, a bull market can only be a great thing for an investor, right? This is the time when rallies become routine and one earns high returns on investment. But the only catch is that the investor should know what to do in this situation.
Below are some things one needs to keep in mind if they want to make most of the bull market.
- Don’t time the market
The basic and instinctive need to buy low and sell high is common amongst investors. But this timing the market approach can prove dangerous during bull market. Because during this time market tends to go higher and higher for a long period of time without undergoing any major pullbacks. If you keep waiting for that dip to start investing, you could remain sitting on the sidelines with cash in hand during a (possibly) multi-year bull market. It goes without saying that keeping cash idle while waiting for that perfect entry point is not the way to fulfill your investment goals. You’ll miss the existing chance of increasing your wealth.
- Do not invest all at once
If sitting outside and timing the market is wrong, so is getting greedy and investing all your hard earned money in a rising market all at once in the hope of making a quick buck. Never let emotions fool you during a bull market. It’s easy to get lured in with the feeling of euphoria and greed when stock prices are on the rise. FOMO or Fear of Missing Out comes into play during such times – “If I don’t invest now it will rise even higher tomorrow & I’ll miss out on the gains!”
But remember that any event can cause them to reverse course and start declining. The last thing you will want is to get caught and fall victim to the market cycle. Therefore it’s always smart to invest smaller chunks of money regularly and spread-invest over longer periods of time. Opt for SIP or STP based on your needs and requirements and make the most of this bull run.
- Don’t get fooled by last year’s performance
The biggest and most common mistake that investors make during a bull market is that that they make their investment decisions on a one-year track record. It’s easy to deliver returns when the entire market is on the rise, but wealth is not generated in one or two years. It is equally important that your money should keep earning decent returns during any and all market cycles, and not only during the bull run. Your investment decision should be made after checking the performance during different market cycles and not only on a single-year performance.
- Never ignore diversification
It’s easy to get attracted towards higher returns earned by the best performing sectors in a bull market and park large amounts of money in one sector only. But understand that this can be a very risky strategy, because there is a chance that these sectors are in a bubble right now. Remember what happened with the dot-com bubble burst in the late 90’s or real estate and infrastructure sector after 2007? Spread your risk with proper diversification and limit your losses in case of bubble bursts.
- Don’t go for IPOs or NFOs blindly
Entrepreneurs and fund houses are smart, they time their IPOs and NFOS during the peak of bull market. This is done in order to take advantage of investors’ euphoria with the main objective of raising as much money as possible. Avoid new funds at this time because such funds may have been launched to make most of the momentum. Similarly. be wary of IPOs as more and more start coming out during this time. A lot of these IPO shares might decelerate exponentially when the market slows down.
If you keep the above mentioned points in mind and invest accordingly you can easily alleviate the risk while making most of your money by participating in a hot market.