Strategy - Part III
Guidelines
Follow the steps -
- Market Timing - Is this right time to enter/exit market ?
- Which Funds to choose - Identify the next probable top runners
- Re-allocate portfolio based on situation/scenario
- Monitor Portfolio - Ongoing process to avoid financial crash and/or pitfalls
Step 1 - Is this the right time to enter/exit market ?
How to know which side of the market we should align our self?
We covered this section in detail under Reading Sensex. This should help us understand where the stock market is headed and we can align ourselves on the right side of the market there by increasing our odds of winning and avoiding unnecessary losses. You can also check our "Blog" for regular updates.
All you need to do is following:
We covered this section in detail under Reading Sensex. This should help us understand where the stock market is headed and we can align ourselves on the right side of the market there by increasing our odds of winning and avoiding unnecessary losses. You can also check our "Blog" for regular updates.
All you need to do is following:
- Check out the Sensex Chart with latest data
- The chart will indicate market direction based on the information provided in the Reading Sensex - Sensex Analysis Part II section.
- Once we know market direction, based on what we have learned so far we know which list of Mutual Funds we should use to make our next investment choice.
Step 2 - Which Funds to select from the list!!!
By now we know two things:
Steps to choose your Fund from the appropriate list:
2. Bear Market or Market going Down - We choose "All Debt" or any other Debt based Fund or Money Market based Fund
Other factors to consider in Fund selection based on your risk appetite and comfort level:
The search results based on above parameters will provide us with a list of Mutual Funds that are top performers, choose the top 5 from the above list to make our investment choice.
- Probable stock market direction for coming months
- We also know which list of Mutual Funds to look at based on Bull or Bear Market
Steps to choose your Fund from the appropriate list:
- Use any Fund Finder tool (e.g. Money Control Fund Selector)
- Choose appropriate Fund Category (required for our Strategy to work)
2. Bear Market or Market going Down - We choose "All Debt" or any other Debt based Fund or Money Market based Fund
- Performance Period = 1 month and "All Gainers" (required for our Strategy to work)
- Age of Fund > 5 years (we can choose based on our comfort level)
- We can add more filters based on our comfort level
Other factors to consider in Fund selection based on your risk appetite and comfort level:
- Fund house - strong presence in the financial world, reasonably long and consistent track records
- Age of Fund - How long the fund has been in existence so that we can view past performance and compare it with other Funds/Market
- Tax treatment - Understand tax implications from capital distributions gains, etc
- Exit load & other fees - Understand fund fees if it concerns you
- Any other filters you would like to add to narrow your list
The search results based on above parameters will provide us with a list of Mutual Funds that are top performers, choose the top 5 from the above list to make our investment choice.
Step 3 - When to re-allocate my portfolio ?
Scenarios:
1. Market timing showing SELL signal
Move our money to appropriate Fund to avoid market drop and lock in our profits
2. Market timing showing Buy signal
Move our money to appropriate Fund so that your money grows and we do not miss out the market rally
3. My chosen Fund is not in the TOP 5 ranked Funds anymore
If such a situation occurs then it means our chosen horse is not as fast as others but nonetheless it is running in right direction. The choice is ours
to either retain the Fund or move money from that fund to any TOP 5 ranked Funds at that point in time.
4. My chosen Fund is going down v/s the Market, however it is still in the Top 5 ranked Funds
If our chosen fund goes down in value beyond a certain threshold (e.g. by more than 10% or so, we can choose percentage based on our risk appetite) then
sell the fund to protect our money by cutting down losses or lock in our profits.
1. Market timing showing SELL signal
Move our money to appropriate Fund to avoid market drop and lock in our profits
2. Market timing showing Buy signal
Move our money to appropriate Fund so that your money grows and we do not miss out the market rally
3. My chosen Fund is not in the TOP 5 ranked Funds anymore
If such a situation occurs then it means our chosen horse is not as fast as others but nonetheless it is running in right direction. The choice is ours
to either retain the Fund or move money from that fund to any TOP 5 ranked Funds at that point in time.
4. My chosen Fund is going down v/s the Market, however it is still in the Top 5 ranked Funds
If our chosen fund goes down in value beyond a certain threshold (e.g. by more than 10% or so, we can choose percentage based on our risk appetite) then
sell the fund to protect our money by cutting down losses or lock in our profits.
Step 4 - Monitor my portfolio
Why should I monitor? I mean can't I allocate my portfolio to TOP 5 ranked Funds and forget!!!
How often should I monitor my portfolio?
- Think of last time we forgot our portfolio allocation and what happened in 2008 financial crisis! Many people lost almost 30-50% of their investment savings.
- Lazy portfolio = poor returns
- Lets go back to our example: In a Derby (horse race), does same horse win the race every time? We don't think so... Similarly, today's financial markets are very dynamic and global. If we want to secure our financial future then take control of our portfolio and finances.
- The fact is we need to guard our money and not rely on news channels/financial advisers/TV programs/others/etc.
How often should I monitor my portfolio?
- Depending on our comfort level we can decide our monitoring interval.
- Considering today's Financial Markets and Global influences, we would monitor at least every week or two.
- Remember, monitoring does not mean we re-allocate our portfolio every week, all it means is if we sense any danger then protect our money or else let it ride the wave.
- Typically, before any major crash or crisis, markets give enough warning signs of danger zone which are clues for us to avoid danger. Before changing direction market provides us with enough clues, all we need to do is watch for it....
Why follow this Strategy?
Benefits of this technique -
Good Luck! and make wise financial decisions to secure your financial future. Feel free to ask questions/ doubts/ concerns or provide your valuable feedback/testimony using "Contact Us".
- We remain invested most of the time, in other words our money is always working for us irrespective of market direction
- Bear markets, market corrections or market crashes provides us a way to be invested intelligently and make good gains
- Our losses are minimal but overall cumulative gains over longer periods are substantial
Good Luck! and make wise financial decisions to secure your financial future. Feel free to ask questions/ doubts/ concerns or provide your valuable feedback/testimony using "Contact Us".