A bull market is the condition of the stock market in which prices of the shares are rising or are expected to rise and encourage buying. But many times, investors fail to get good returns as they fall prey to some common mistakes while investing in the bull markets. Here listing out some common mistakes which investors make in a bull market and what they need to do to avoid those mistakes.
Trying to time the market
Timing the market is difficult and requires financial expertise. Investors generally are not able to time the ups and downs of the market precisely. Most of them are not able to spot a bull market when it is taking off. When the market runs up significantly, they realize that they have missed the right time. investments should be goal-based, not timing-based. Hence always set your investment goals and invest for the long term. Market timings do not matter much if you have a long-term investing horizon.
You should refrain from making lump sum investments when the market trades at all-time highs as it may result in poor returns. Instead, you should invest that lump sum amount in a staggered and disciplined manner through SIPs for 3-4 years. When we invest our money for a long period, it balances out all the highs and lows and gives us a good decent return in the end.
Closing the ongoing SIPs
During the bull market, simply by looking at the short-term low return value, investors tend to close their SIPs. While the main objective of a SIP is accumulation, you should not only go after the returns. It is time to be patient in both the bull and bear market. Return will follow up on its own in the due course of time.
Incorrect asset allocation
In a bullish market, hot stocks are always in the news. Investors get entice to buy these stocks and invest all their money in them without paying attention to the correct asset allocation. You should diversify your investments among several asset options like equity, debt, and digital gold to reduce the risk. Hence you need to make sure that your money is allocate properly in different asset classes so that your investment goals could be met easily.
Buying underperforming stocks
When the market is at an all-time high, investors should keep away from the stocks that are not performing well or at their 52-week lows. A stock at its 52-week low is not an indication of it being undervalue or available at a relatively cheaper price in comparison to peers. You should not be lure in by such a situation and must avoid buying low-priced stocks.
Following the heart, not the mind
In a bull market, investors tend to ignore the fundamentals and focus more on market sentiments. Irrespective of the market situation, the business of a good company, its management, and its long term goals do not generally change a lot. Short-term market movements driven by sentiments but long-term returns by fundamentals. Therefore, use fundamentals to make investment decisions and
ignore the market noise.
Investing in stocks and mutual funds for a long period, investors can generate good wealth by the effect of compounding. Investors should avoid the above said mistakes while investing in a bull market. They should try to consult with a financial advisor if needed.