PM Modi says stock markets will hit record high on June 4: should you invest more?

Union Home Minister Amit Shah said in an interview to a TV channel that investors should buy before June 4. According to his expectations, the markets will soar. Prime Minister and Union Home Minister expect market gains by June 4. So, do you need to invest more money to benefit from it? Let's discuss it.

Should you invest a lump sum before June 4?

After listening to the statements of prime ministers and interior ministers, many people might be tempted to invest a lump sum before June 4 to take advantage of the trend. However, stock market investments should not be made with a single date in mind (June 4, 2024 in this case). It is therefore advisable to refrain from investing a lump sum amount before June 4 to benefit from a one-day trend. Remember that investing in the stock market is a marathon, not a sprint. Usually in the stock markets, slow and steady wins the race in the long run.

What should you do?

You should always follow goal planning. You should work with a qualified and experienced financial advisor. They can help you identify your financial goals, develop a financial plan, recommend appropriate financial products for investment, and conduct regular reviews. In short, they can support you throughout your financial planning journey until your financial goals are achieved.

Track asset allocation

Rather than investing in a single asset class like stocks, you should build a diversified investment portfolio. You need to spread your risk by investing in various asset classes like stocks, fixed income, gold, real estate, etc. Each asset class in your portfolio has a distinct role to play. For example:

a) National equity is intended for growth and wealth creation.

b) International stocks serve as diversification against country-specific risk and growth.

c) Gold and silver serve as a hedge against inflation and a safe haven in times of uncertainty.

d) Fixed income securities provide stability to the overall portfolio when stock markets are volatile and undergo a correction.

Likewise, other asset classes, such as a house (real estate), are used to live and insurance is used to protect oneself.

Once you have diversified across asset classes, you need to diversify within asset classes. For example, within stocks, you should diversify across large, mid, and small cap mutual funds.

Invest via SIPs

Stock markets can be very volatile in the short term. Therefore, rather than investing a lump sum amount, you should invest through the Systematic Investment Planning (SIP) route. The SIP route helps you navigate market volatility by averaging the purchase price. With a SIP, you buy more units when the market falls. When the trend reverses and the market rises, the value of your accumulated units increases.

SIPs help you invest in a disciplined manner for the long term. With the SIP step-up option, you can increase the monthly investment amount by a percentage or an absolute amount on an annual basis.

Investing for the long term

Investments should never be made with just one date in mind. The stock market reaction to the election results will be a one-day phenomenon that comes and goes. You should always invest for the long term. By giving your investments time to grow, you can benefit from the power of compounding. Regular long-term compounding investments can create wealth for you and help you achieve your financial goals.

Other factors will determine how stock markets react

Multiple factors determine the direction of the stock market, and election results are just one factor. Other factors include the two ongoing wars (Russia-Ukraine and Hamas-Israel), high interest rates, upcoming elections in the United States and other countries, trade/tariff wars, prices high prices for raw materials, unfavorable climatic events, etc.

Expected corporate earnings growth and overall market valuations are also very important. Currently, markets are near all-time highs and valuations are not cheap. So even if the election outcome matches market expectations, a combination of other factors can take over and change the direction of the market.

Sometimes markets rise in anticipation of a news event and correct when the news is released. Stock markets are already at or near all-time highs in anticipation of a positive outcome from the June 4 election results. If the news results are already factored in, instead of increasing, why will the markets remain stable or correct when the news is released on June 4? You should consider all of these scenarios before deploying additional funds in anticipation of a news event.

Don't get carried away by euphoria

Great euphoria is building as the June 4 election results date approaches. However, you need to stay calm and not get carried away in the one-day euphoria of markets hitting new highs on election results date. Instead of focusing on one day's trend, focus on the long-term trend of India's economic growth potential.

Today, India is one of the fastest growing economies in the world among major economies. The growth trend is expected to continue in the coming years. So, if you stay invested for the long term, you will benefit from India's economic growth potential. You should continue your investments as is without making any changes based on expectations regarding the June 4 election results. Work with a qualified and experienced financial advisor who will recommend any portfolio changes, if and when necessary.

Gopal Gidwani is a freelance personal finance content writer with over 15 years of experience. He can be reached at LinkedIn.

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Published: May 28, 2024, 02:06 PM IST