How to Invest When Market is High

When the stock market is at an all-time high, it is always tempting to start investing immediately. But during these times, it is important to stay cautious. That’s because the market can rise or fall unpredictably, and it is difficult to know whether to wait for a correction or invest right away. If you're new to investing, you must maintain composure and avoid making impulsive decisions.

Instead of rushing into investments, you should take time to create a thoughtful investment plan. Ideally, this plan must balance your risk tolerance with your financial goals. By doing so, you'll avoid costly mistakes and make better long-term decisions, even when the market feels uncertain or volatile.

If you are looking to invest when the market is high, below are the five important things you can do to maximise your returns.

It must be noted that over the years, stock market conditions have changed significantly. When you first created your portfolio, the market was likely different. Now, the stocks you chose may no longer be performing as expected. In such situations, the reasons for buying those stocks no longer apply. Moreover, some companies that were once market leaders could have lost their position.

If you continue holding underperforming stocks, you risk facing losses. Therefore, it is crucial to evaluate your portfolio and identify which stocks no longer hold value. Ideally, you should remove these lagging stocks and stay aligned with current market trends. This ensures that your investments remain strong and relevant.

Adjustments or re-balancing your portfolio means making changes to your investments in a way you can maintain the original balance between different asset types, such as equity (stocks) and debt (bonds).

Please note that over time, the market changes and causes your portfolio to shift away from your planned ratio. For example:

• Say your goal was 50:50 (equity: debt).
• Now, in a rising stock market, this ratio can be pushed to 70:30.
• This makes your portfolio more dependent on stocks
• In such a situation, you need to re-balance your portfolio to restore the original 50:50 goal.

While investing when the market is high, you must diversify your portfolio and spread your investments across different types of stocks to reduce risk. Be aware that if your portfolio only has small-cap or mid-cap stocks, it can be risky, especially when the market is high. That’s because small and mid-cap stocks are more volatile, and their prices fluctuate rapidly. In a rising market, this concentrated investment exposes you to more risk and likely losses.

Therefore, to balance this, you must practice diversification by adding large-cap stocks to your portfolio. Large-cap stocks are generally more stable and less affected by market fluctuations. This addition protects your investments during times of market volatility.

• While investing, when the market is high, evaluate your portfolio and remove underperforming stocks.
• Re-balance your asset allocation and try to restore your original equity-to-debt ratio. This helps you to maintain your desired risk level.
• Prefer spreading your investments across large, mid, and small-cap stocks. This makes your portfolio more stable during volatile market conditions.
   

For beginners, investing directly in the stock market can be risky. If you’re not comfortable with stock trading, equity mutual funds are a good alternative. These funds allow you to invest in stocks but with:

• More diversification
  and
• Professional management

To get started, you can even set up a Systematic Investment Plan (SIP). In a SIP, you invest small amounts of money regularly rather than putting in a large sum at once. This approach helps you benefit from "rupee-cost averaging," which means buying more units when prices are low and fewer units when prices are high. This even reduces the impact of market volatility and helps grow your wealth steadily.

Investing in something you don’t fully understand can again be risky. While investing, when the market is high, you would see several companies offering new and complex financial products. These products can also seem tempting with promises of high returns. Usually, these are called New Fund Offers (NFOs).

However, if these products are not clear or transparent, you should avoid them. Always ensure that you fully understand where your money is going. It is safer to invest in products with a solid track record of at least 5 to 10 years.