The Signal: How To Invest When Markets Seem Peaked

1. Should I invest today when the market is near its all-time high?
2. Is it possible to make money in today’s markets?
3. The markets may go down from here. Is it best to wait out the fall and then invest?

Carrying the same tone, the questions above are a summation of our investor’s most frequently asked worries. The CY2021 YTD run-up lends merit to their pains, as arguments calling for future rise or fall hold equal credibility with investors left to fend off the interim volatilities.

Shown below is the market’s trajectory so far in CY21 YTD:

In be-friending volatility, markets graced all-time highs and settled at levels last seen in 2020. On a daily basis, +ve and -ve equity returns are equally distributed, further adding friction to finding direction in a market where there is none to be found. 

Fortunately, optimism still continues to hold softer edge with renowned investors pegging Nifty at 1,00,000 by 2030. Their observations make entering markets today an easy and lucrative ask, but as we know, it is anything but easy.

In realizing the importance of time in the market vs timing the market, it is imperative to design a structured/systematic entry point into today’s markets. (Systematic…hmm? I think you must have realized where this piece is headed next)

Yes, you guessed right, we are going to be talking about SIPs! 

In 1 sentence, SIP is a science-cum-art method of investing, inculcating discipline while being market level-agnostic. 

Today, while markets are not particularly range-bound, they are still tethering near their all-time highs, or showing euphoria to re-trave those levels. 

So, can SIPs work in today’s markets? Rather, how effective is it as a tool of investing when markets are near their apparent peaks?

The graph below shows how SIPs performed in the past if initiated at peaks vs bottoms: 

As is seen above, SIPs started at year-peaks out-performed investors “timing” the bottom, and marking their entry at said levels. The time-lines shown above were wrought with frenzy, carrying similar uncertainties regarding market’s near-&-long term growth.

In fact, the same was seen in Year 2000, where SIPs starting at peaks delivered lucrative returns to investors. The table below highlights the same:

Another key observation that we can draw from the numbers above is the impact of early investing. Earlier the start, higher is the benefit accrued from the magic of compounding. 

Investor Takeaway:

As is widely acknowledged, no can accurately predict what the next market high or bottom will be. However, empirical testing suggests that SIP can help investors recognize market’s potential via active participation even when participants are left blindfolded by their own admissions. So, don’t worry about where the markets are headed, as long-term investors are the only real winners in the Indian markets. 

We actively recommend you to start your SIP today in funds which suit your risk-return profile and help you maintain your required asset allocation.

As always, we excitedly await to hear from you. 

Till next time, wish you a happy weekend.