By Adhil Shetty
In the financial markets, you can only make money by timing your entry and exit well. Get any one of them wrong, and you run the risk of losing your invested money or not getting the expected returns.
While it is true that no one can time the markets, with some research and a long hard look at your investment goals, horizons, and plans, you can fine tune your exit timing.
Five things to look at before timing your exit strategy
Here are five aspects to investment you must keep in mind when you are finalising your exit strategy with the intention of getting good returns.
* Know your objective before timing your exit: You may think that the only objective of everyone who puts money in the financial market is to make a profit. This is not true. Everyone has his own objective. While some may be looking at wealth appreciation, others may have specific goals like hedging for inflation or capital appreciation.
Before you decide on a good time to exit from the market, check if your investments have reached the objectives that you started with in the first place. If the answer is yes, your exit strategy can be formulated. However, if your goals are still some distance away, you are perhaps exiting at the wrong time.
* Take time in deciding your holding period: Everyone has an investment strategy which is linked to their goal. If you had a strategy for a long term investment for, say, two years, do not think of selling mid-way just because the markets are not performing as well as you wanted them to or because everyone you may know is selling.
There will always be short-term volatility and the path towards long-term gains is always full of ups and downs. Do not be afraid of cyclic downs or bear phases. Usually, when you let your investment run its due course, you will reach your investment goals provided your assets and goals have been thoughtfully chosen. So, selling mid-way just because everyone you know is selling is a big no.
* Don’t be rigid with your exit strategy: Altering your investment strategy mid-way based on hearsay and unsubstantiated market knowledge is not recommended. But this does not mean you have to be rigid about not exiting prematurely. Check the history and valuation of your investment and if you feel selling a part of it will be a good idea and help you balance your overall portfolio, selling should be considered.
Investment plans are a roadmap at best but you need to go with the flow as markets keep twisting and turning. Whatever decisions you take, base it on the fundamentals of financial markets, the overall economic outlook, and your investment objectives. Do not sell on impulse or do a stress sale in a falling market.
* Reviewing your portfolio will reveal secrets: The one big advice easily overlooked by a majority of investors is to keep revisiting and reviewing their portfolio. As a proactive investor, if you keep reviewing your portfolio, you are likely to come across invested instruments that will be better off exiting rather than staying invested in.
Reviewing will help you find the underperforming assets and you can then chalk out an exit strategy for them. You can also opt for customized sell recommendations from your financial advisor and then take an exit call accordingly.
* Don’t link selling with just the returns: There are some investments which are by nature long term investments. If you believe in the strong fundamentals of any invested asset class, do not let the sluggish returns or lack of movement in the short term deter you. As an investor aim for a medium to long-term investment horizon, and even if the investment may appear to be sluggish, stay invested and trust your fundamental investing ability.
Exiting the market in a timely way is just as important as entering the financial markets. Like in the case of entering, there is no one fixed time for an exit. Allow your exit timing to be flexible and in accordance with your investment goals and horizons.