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What If You Timed Your Mutual Fund Investments With The FIFA World Cup? - Outside View by PersonalFN

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What If You Timed Your Mutual Fund Investments With The FIFA World Cup?
Jun 29, 2018

Does the name Achilles or Paul ring a bell?

To give you a hint, they are not human and both have psychic powers.

Football fans would recognize them instantly as Achilles the mystic cat and Paul the octopus. Both soothsayers of the FIFA world cup, albeit, for different seasons.

Achilles, a deaf cat, is the official animal psychic of the 2018 world cup. Achilles correctly predicted Iran beating Morocco, Russia beating Egypt, and Brazil beating Costa Rica.

But the oracle cat went wrong on its fourth prediction where it tipped Nigeria to beat Argentina in the crucial battle on June 26, 2018. In a dramatic win, Argentina beat Nigeria 2-1 to qualify for the round of 16.

The cat has a success rate of 75%, and still has some matches to go.

In World Cup 2010, Paul, the soothsayer for the German national football team, correctly predicted all the matches involving the team and the World Cup 2010 final, where Spain walked away with the cup.

Imagine using such predictive powers to guide your mutual fund investments?

Thankfully, Achilles limits his curiosity and sticks to football. His predicting powers may send the stock market in a tizzy. But without him, too, the market is no less unstable.

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On Dalal Street, we have our very own learned individuals with extrasensory perception, they are known as "experts".

When the market is doing well, you will hear them tom-tom predictions such as -

"Expect Nifty to touch 11,180 by Q3 2018"

"Sensex to touch 45k by 2020"

"Sensex to touch 54,000 by 2018"

These are actual statements made last year. This was in May 2017, when the market was heading up. Few months later, at the beginning of January 2018, a Business Standard poll found that approximately three out of four respondents expect 40,000 as the highest level for Sensex in 2018.

However, with crude oil strengthening, its macroeconomic fallout, and the US Fed tightening interest rates beyond the markets' expectations among other concerns have toned down the Sensex/Nifty targets.

For an average investor, it becomes difficult to discern the truth in the data, especially when those numbers get more outlandish and difficult to conceive. Though there are compelling reasons why the market could keep heading higher over the long term, investors should start being more cautious rather than excited.

Do not rely on economic, stock market, or interest rate forecasts to underpin your investment decisions. With experts and analysts futzing with their Sensex and Nifty targets, an over-reaction is imminent. Herding and other behavioural factors come into play. It won't be too long before fear strikes.

Remember, the key is to remain unemotional and analyse the situation in a calm and rational manner. This will lead to prudent investment decisions.

The sole mantra for success - Keep a long-term focus

A long-term investment horizon can help grow your wealth though the power of compounding.

The FIFA World Cup is held in June-July every four years. Had you invested at the start of the World Cup you would have made decent gains, in each of the 4-year periods.

Check out the chart below. The vertical red lines indicate the when the FIFA World Cup was held.

Will Investing During FIFA World Cup 2018 Follow The Trend?

Over the near 40-year history of the Sensex, there have been 10 Football World Cups held. FIFA World Cup 2018 being the latest. Had you invested during the World Cup and held your investment till the next, there would have been just two occasions when you would have not made money.

As can been seen in the chart above, out of the nine 4-year periods, you would have made double digit returns on five such occasions. However, you would have ended up with a loss of 6% in the 1994-98 period, and nil returns in the 1998-02 phase.

In the consequent periods, the market fought back and delivered sound back-to-back gains. If you invest now, will the market performance over 2018-22 give you a reason to celebrate when the World Cup is held in Qatar?

Some would wish our mollusk friend Paul was alive to answer this question. He had more accurate and verifiable predictions than most market analysts.Some may also hope for an invisible hand to guide their investments. Our suggestion is to be proactive than reactive.

There is a famous quote by Louis Pasteur - "Chance favours only the prepared mind."

More important than timing the market is to spend time in the market. This has been the common trait across each of the holdings made during the FIFA World Cups. Longer you hold on to your investment, the more time you give it to grow.

Thus as an investor, you may be optimistic of a market up move, given India's projected GDP growth, rising consumption and the push for development and reforms. However, there are risks too, both domestic and global.

And given the market history, the ride is never smooth. Thus, you need to approach the market both strategically and tactically.

At a time when valuations seemed stretched, a staggered approach to investing is a prudent path to take. There's no point timing the market either. No one has derived much success from it. A trader is good only until his last trade; you don't know what's in store - good, bad, or ugly.

Remember, trading can be hazardous to your wealth and health. Hence, follow a sensible approach: invest as per your age, risk profile, financial health, investment horizon, financial goals, and draw an asset allocation that's most appropriate for you, rather than fretting about whether it is the right time to buy or sell.

While you invest in equities, it's better to choose diversified equity mutual funds over sector/thematic funds for the host advantages they offer. But make sure you're selecting the best mutual fund schemes for your portfolio.

If you need unbiased research-backed guidance to select the best equity mutual fund schemes for your portfolio, don't miss to opt for PersonalFN's 'FundSelect' service. We will share with you the 6 ultimate secrets to beating the market by a whopping 70%! It is the simplest and potentially the best way to grow your portfolio value significantly!

Don't fall for opinions urging you to invest aggressively because the market may hit newer highs, or even those asking you to sell and move to cash. Invest as per your financial plan that's been drawn up after evaluating aspects such as your age, risk profile, financial health, investment horizon, financial goals, and so on. It's better to have your investment right than timing it wrong.

If you have a financial plan in place, stick to it.

To conclude...

PersonalFN is of the view that, before putting money in equity mutual funds, you should be sure that you don't need that money for the next five years. Don't get carried away by the market, which confounds investors every passing day.

Those who want to take exposure to equity markets now, should opt for Systematic Investment Plans (SIPs). Taking the SIP route enables you to average out your buying when markets drift down and compound your money when markets scale up.

PersonalFN believes investors should concentrate on getting their asset allocation right. There are benefits of investing as per your personalised asset allocation.

PersonalFN provides extensive advice on money matters and helps people plan finances for achieving their long-term goals. Sign up for our exclusive Comprehensive Financial Planning Service here. Through this service, our qualified financial planner will help you plan for financial goals such as house purchase, child education, child marriage, vacation, retirement, etc. They will provide you unbiased recommendations backed by research experience of more than a decade.

Editor's note:

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Based on the 'core and satellite' approach to investing, here is our latest exclusive report:

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In this report, PersonalFN will provide you with a readymade portfolio of its top equity mutual funds schemes for 2025.

The Strategic Funds Portfolio for 2025 is equipped to multiply your wealth in the years to come. Subscribe now!

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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