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Don?t worry about crash, adopt a long-term investment plan

MARKETS WILL see corrections and sometimes even crash beyond your expectations. If you have decided to invest in stocks and reap the benefits, it is imperative that you adopt a long-term investment plan.

india Updated: May 21, 2006 00:01 IST

MARKETS WILL see corrections and sometimes even crash beyond your expectations. If you have decided to invest in stocks and reap the benefits, it is imperative that you adopt a long-term investment plan.

Most people invest in stocks and expect their money to double in the shortest possible time. If you want to double your money in quick time, be ready for huge financial losses if the market crashes. Stock markets are certainly not a casino.

On the other hand, if you have a huge risk appetite and cash that you are willing to either double in the short term or lose equally fast in a bear market, go with the market dynamics without a care in the world for some bad investment advice from friends, or brokers.

The stock market is, in real terms, a reflection of economic growth of any country. This means that one needs to align one’s expectation of returns, which is in line with the expected GDP growth of an economy.

There is another major pitfall if you take a very short-term view about investing in stocks—Timing the market is impossible. You could be lucky once, or even twice, but ultimately there are chances that you will wipe out your net worth in a day’s crash in the market.

A sincere advice to investors is not to panic when the market is crashing and don’t become greedy when the market are rising at a rate higher than your expectations. Stock market history has shown that when most investors are selling, you may have been better off buying some good overvalued shares at bargain prices.

One will like to reiterate the fact that it is always prudent to stay invested for longer periods of time, preferably for two to three years. This will keep you from making common mistakes of getting greedy or picking the bad stocks.

Another fact remains that there is no short cut to riches for a small investor putting his money in the stock market. An intelligent asset allocation, coupled with some research on future prospects of the winners among stocks, could make you rich over the long term.

If you are good at research, look for some good mid-cap stocks, with reasonably healthy balance sheets, that are currently underperforming in the market. These stocks over the longer term could help you reap benefits when their valuation is determined by strong market fundamentals and not speculative behaviour of market operators.

Remember that there will always be ups and down in the bourses. It is your long- term investment planning which will carry you through the day without having any heartburns about markets crashing at times.