The recent fall in the equity market has highlighted a different character of retail investors. Contrary to the earlier perception that retail investors are the last to join and the first to leave, this time they were clearly the first to join the party when their institutional counterparts were still sceptical. There were instances when retail investors were nimble enough to spot opportunities in the equity market, investing in a staggered manner. This behaviour reflects that a lot has changed in the last few years and that now retail investors are acting in a more mature manner, displaying discipline while taking investment decisions.
Once again when the market has taken off on an upward spiral and has risen by more than 40 per cent from its recent lows, investors have started to book profit. This has been reflected in the June 2020 mutual fund inflow numbers where redemptions have increased considerably from equity-dedicated funds. Making these tactical investment moves should be part of your entire investment strategy but this should not be your only investment strategy or rather a trading strategy. Nobody has ever consistently timed the market and benefited out of it. To fulfil your long-term investment needs you need to have a more disciplined approach.
Investment Process
The investment decision process for retail investors is well cut out and has been documented by professionals and academia. There is a five-step process that needs to be followed in a sequence.
1. Setting the long-term asset allocations, as for example, how much of your investment should go into bonds and how much should go into stock.
2. Establishing the investment policy and rebalancing the parameters.
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