When to look for booking profits or when not to look for booking profits in the stock market?
Created on 22 Apr 2019
Wraps up in 2 Min
Read by 2.4k people
Updated on 19 Oct 2019
The whole and sole idea of investing in stocks is to make profits. But, when should you look at grabbing profits and when not to look for profits in the stock market is a science that needs to be learned. Should you be banking on profits when the stock market is hitting a peak? Or, should you hold back on to the investments longer for the profits to multiply?
I would say that this is still a gap that needs to be filled. Whether you have been investing each month systematically or you occasionally invest in stocks, you would be tempted to take a share of profits fearing that these profits may not last forever. Moreover, whenever the market is nearing its peak, there is a lot of noise made in the BSE and NSE market that the Sensex is nearing its benchmark. You see all the websites, financial advisories, stock brokerage firms joining in making this noise which creates a powerful momentum and compels you to grab your share of profits. Of course, your real patience of holding the shares for too long gets tested here.
To understand what exactly should you be doing, let us know the market possibilities first:
It's hard to predict the future: The stock market has always been highly unpredictable. However, it may take a U-turn by suddenly in correcting itself by 10%, or it may crash suddenly altogether. These are the possibilities that are very hard to predict in the stock market. But, the truth is that no market expert even Warren Buffet himself can tell when is the market going to take a U-turn. Thus, it is always recommended not to touch your long term investments based on your short term goals. This is a time when you must not look at booking your profits. Now, let me see a scenario when you must look at booking your earnings.
Let your fund allocation strategy succeed: When you invest in funds, you always opt for a healthy mix of debts, equities, real estate, gold, bonds, etc. The financial assets usually are classified into equity and debts. The usual ratio followed is 60:40 where 60% of your funds are invested in equity and the rest 40% are invested in debts. Now, this proportion is encouraged to keep your investments risk averse at the time of stock market adversity. Suppose, the equity market starts flourishing which it does after regular intervals. And, your equities worth start raising up making it a 70:30 ratio. Here, 70% of your money is invested in equities, and the rest 30% is in debts.
Thus, to make your investments risk-proof, you must again look back at adjusting the investment proportion to 60:40. So, here you may consider booking your profits to bring the proportion back to the level as suggested. So, you see depending on the situation and the market scenario you must look at or refrain from booking profits for your investments.
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