Retirement Planning – We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle? Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future.
Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same.
Related Article: Start Early To Retire Early – Retirement Planning
Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income.
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Timing the Market vs Time in the Market: Mr. Sharma was very much worried about the stock market would fluctuate and so will his returns. He said “I am thinking whether I entered the markets at right time. Right now, markets are volatile and can’t be timed for a better entry point”
I refuted him, “No investor can time the market for correct entry or exit point. Due to the dynamic nature of the markets, it is better to wait and hold the stock for the right time rather than timing the right entry or exit points in the stock markets.”
“Well, now I am confused, aren’t those both the same things?” Mr. Sharma said.
“Not at all, these are totally different strategies and give different results. I will help you understand these.”
Who is a perfect investor?
A perfect investor is the one who can buy a stock at its lowest price level and sell at its highest price level. This perfect investor is a myth. Time plays a very vital role in choosing an investment strategy. Fluctuating markets reflect promising returns and many of us get attracted by short-term numbers showing high gains. In the short term, markets are generally volatile, while in the long run, investments exhibit stable behaviour and deliver consistent returns.
The market moves in the most unpredictable ways in the short run, but in the long run, there is much more predictability. Before investing hard-earned funds, one needs to understand the working of markets and the risks associated with investing, which is not easily possible with short-term investments. Investment objectives might differ from person to person, but everyone intends to get good returns.
Related Article: Impact of having Domestic stock in your Portfolio
What is Market Timing?
Market timing is an investing strategy in which the investor tries to identify the best times to enter and exit the market. This can result in higher returns than other strategies. However, there are risks involved. Changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant. Regular evaluations are necessary as this strategy involves active monitoring of funds invested. Timing the market requires many, many correct guesses – when to get in when to get out when to go back in again and it is a continuous process. The probability of making correct guesses most of the time is quite low.
What is Time in the Market?
This investment strategy is also called Buy and Hold investing, however, it doesn’t mean ignoring your investments. Here, the investor focuses on buying quality stocks and holding them for a longer-term. Here, the investor intends to pick a good stock at a fair value rather than an average stock with a great valuation. The longer you stay invested, the lower is the risk of losing funds. Long-term investments ensure consistency against speculative gains. Successful investors base their actions on deep research rather than random market ups and downs. However, it is advised to monitor your investments regularly.
What do we understand as the difference between time and timing? To understand this difference, one needs to look at the difference between speculation and investing. Speculation is trying to take a bet on the future direction of the market and positioning your trades accordingly. On the other hand, investing is all about focusing on the quality of the asset and holding on to it for the longer term. That is the fundamental difference between the timing of the market and time in the market. When you try timing the market you are effectively speculating on the market direction.
Why does time in the market work better than timing the market?
- In the short run, a stock market is a slotting machine but in the long run the stock market is a weighing machine. Over a longer period of time, quality stocks held on tend to outperform any kind of aggressive strategy for timing the market. Over the longer run, the vagaries of the markets tend to get smoothened.
- Transaction costs make a big difference to a timing strategy. When we talk of transaction costs, we refer to brokerage, statutory costs, taxes, exit loads in case of mutual funds etc. When you add all these up the actual economics of timing the market can change quite drastically.
- Timing the market is very vulnerable to the handful of good days and bad days in the market. Over a period of 10-15 years, there will be days when the markets will either spurt sharply or correct sharply. In the process of timing the market if you miss out on these good days or if you happen to buy on the bad days, your timing concept can grossly underperform. This is what actually happens when you try to time the market.
- When you try to time the market, you tend to get carried away by the hype in the media and the analyst community. Normally, the media and the analyst community tend to create a sense of hysteria around stocks which may not really materialize. That hysteria is essential to create interest but, in the process, you may end up hurting your portfolio.
- Time in the market gives you a sense of perspective. When you time the market, you tend to get too involved with the market vagaries at a short-term level. Instead, if you take a longer-term approach you are able to invest when valuations are attractive and vice versa. This sense of perspective works in favour of time in the market over timing.
So, clearly, Mr. Sharma should approach time rather than timing. Markets have proven time and again that passive, long-term investing without any attempt to time the market would be the superior choice.
Cabinet approves PLI scheme for telecom sector worth ₹12,195 crore
The Union Cabinet on Wednesday approved a ₹12,195-crore Production Linked Incentive (PLI) scheme for domestic manufacturing of telecom and networking products such as switches, routers, radio access networks, wireless equipment, and another internet of things (IoT) access devices.
The core component of this scheme is to offset the huge import of telecom equipment worth more than Rs 50,000 crore and reinforce it with ‘Made in India’ products, both for domestic markets and exports,” the telecom ministry said in a release. Currently, India imports over 80 percent of its telecom and wireless networking equipment.
With the inclusion of telecom equipment manufacturing under the ambit of PLI schemes, the total number of sectors under such programs stands at 13. All the sectors included under the various PLI schemes are mostly labor-intensive and aim to attract global manufacturing giants into the Indian manufacturing space.
Trade experts are of the opinion that all the sectors chosen under PLI schemes are also a part of the government’s plan to present India as an alternative destination to China for setting up manufacturing hubs.
In November, the PLI scheme was expanded to include 12 more sectors such as automobile and automobile components, pharmaceutical drugs, textile products, food products, high efficiency solar photovoltaic modules, white goods such as air conditioners and LED bulbs, and specialty steel products. Finance Minister Nirmala Sitharaman had in her Budget for 2021-22 said the total outlay on PLI schemes in these 13 sectors over the next five years would be Rs 1.97 lakh crore.
Warren Buffett Buys Telecom, Drugmaker Stocks; Apple Stake Cut
In Q4, Buffett opened new stakes in Verizon (VZ), Chevron (CVX), Marsh & McLennan (MMC) and EW Scripps (SSP).
The new Verizon stake is big: – Buffett paid $8.62 billion for the 147 million shares. It now accounts for 3% of the portfolio, making it the No. 6 stock by number of shares held.
Berkshire dumped entirely Pfizer (PFE), JPMorgan Chase (JPM), Barrick Gold (GOLD), M&T Bank (MTB) and PNC Financial (PNC). The conglomerate grew stakes by 117% in T-Mobile (TMUS), 34% in Kroger (KR), 28% in Merck (MRK), 20% in AbbVie (ABBV), 11% in Bristol-Myers Squibb (BMY), and 1% in RH (RH).
Buffett cut a stake in Apple (AAPL) by 6%. It remains the No. 1 stock in his portfolio by market value and No. 2 stock by a number of shares held, at 10.6% of the portfolio. He kept an Amazon (AMZN) stake steady.