There are two sides to investing, buying and selling. The most basic purpose of any investment is to make profits. Those profits are useful to you, only if you actually book them when you sell your investment
However, the danger of focusing too heavily on profit booking is that you don’t want to indulge so frequently that you miss out on compounding returns if the investment was just let to grow.
The market benchmark, the S&P BSE Sensex, is currently around 85000; the past 2000 odd points were earned over the course of 6-7 market days. So far in 2024, the index has risen roughly 18% in 9 months. This follows an eight-year streak of positive returns. Markets rarely have such a long sequence of good returns.
Good quality equities portfolios can generate volatile returns in the short term while also providing inflation-beating, compounding returns in the long term. Thus, for goals that are at least a few years away, investing through a stock portfolio makes sense.
When you are 12-18 months away from achieving your financial goal, it is sensible to sell your equities portfolio set aside for the goal or to the extent that the funds are required and reinvest them in a low-risk product with a focus on capital safety.
This manner, you avoid any impact on the value of your investment caused by short-term volatility in the equity markets. Rebalancing: When one asset class provides outsized returns in a short period of time or consistently over time, the allocation, thanks to accumulated profits, towards that asset tends to go out of balance.