Mutual Funds: Should you stop or pause investing when markets hit all-time highs? 3 experts answer

The recent robust performance of the stock market is undeniably sparking enthusiasm, as investors eagerly anticipate additional gains in the upcoming days. While the delight of profiting from the market is clear and tangible, it is crucial to approach this optimism with a prudent perspective.

Favourable economic data releases, such as robust job figures or enhanced GDP growth, have the potential to bolster investor confidence and elevate market sentiment. There is optimism that the upcoming interim budget will tackle pertinent issues related to taxation and credit accessibility. Numerous companies have disclosed impressive earnings, thereby substantiating elevated valuations and increased stock prices.

Deciding against continuing investments?

Amidst this euphoria stemming from an economy that continues to defy macroeconomic factors and show resilience, numerous investors are becoming anxious, contemplating whether to halt their systematic investment plan (SIP) contributions or postpone lump sum investments altogether.

This is a question that cannot and must not be responded to without due consideration. There is a need to look at it objectively considering how many investors are driven by unwanted fears and paranoia into stopping or delaying their investments.

A tête with some personal financial advisors reveals why discontinuing or delaying investments offers no advantage. Succumbing to market hype has proven more detrimental than beneficial, with even those who claim to be long-term investors rushing to secure profits from their mutual funds.

Should you pause or stop your mutual fund SIPs?

Typically, it is not advisable to halt your SIPs during market peaks. Do you understand why?

• Primarily, timing the market is notoriously challenging. Consistently forecasting market movements is nearly impossible, even for experienced professionals. Attempting to pause and resume SIPs based on short-term highs and lows can result in missed opportunities and diminished returns over the long term.
• SIPs leverage cost averaging. Through SIPs, you consistently invest a fixed amount at regular intervals, irrespective of market fluctuations. This strategy evens out your cost per unit over time, allowing you to acquire more units when prices are low and fewer when they’re high. This approach minimizes the impact of volatility and has the potential to enhance your overall returns.
• Investing through SIPs cultivates discipline. Interrupting your SIPs can disturb your investment discipline and create challenges in resuming the routine later on. The consistency of regular, automated investing holds significant power, and halting it can disrupt that momentum.

Rishabh Parakh, Chief Play Officer, NRP Capitals explains, “SIPs must not be stopped given the market highs and should only be stopped in case there is a change of financial goals or future earnings but market high lows are not in anyone’s control. For lumpsum, one should spread the same in 6-12 months via a systematic transfer plan.”

Certainly, there could be certain situations where assessing your SIPs is a prudent move. However, linking this decision to potential corrections following market highs might not be accurate. All-time highs are a frequent phenomenon in the stock market and are not necessarily indicative of an imminent correction. In reality, historical data demonstrates that markets can continue to trend upward for prolonged periods, even after reaching new highs.

Viral Bhatt, Founder, Money Mantra added, “Deciding whether to pause SIPs or lump sum investments at market highs is a complex question with no single right answer. If you have concerns about market valuations being particularly high, a temporary pause in lump sum investing could be prudent. This allows you to deploy the capital later when potential corrections offer lower entry points. Apart, if you have short-term financial goals that require accessing the invested funds soon, you might consider pausing or slowing down contributions to prioritize liquidity. Also, if market volatility at such highs increases your anxiety, taking a temporary break might be beneficial for your mental well-being.”

Suresh Sadagopan, Founder, Ladder7 Wealth Planners added, “One should keep the investments on as the high point is as compared to the past; the index or stock can go far ahead in the future in line with the performance of the economy, stock or the index. By trying to time and stopping, one runs the risk of investments not happening and the risk of money getting spent on something or the other.”

Interrupting or ceasing investments during market peaks or due to apprehensions about a correction is counterproductive to reaching your financial objectives. Bhatt adds, “Instead of stopping completely, you could choose to reduce your SIP or lump-sum amount until market conditions seem less frothy. One may also consider investing in safer assets. Divert some of your investments to less volatile assets like debt funds or gold while maintaining exposure to equities. Expand your portfolio to include different asset classes and sectors to mitigate risk and volatility.”

In the end, whether to halt, cease, or maintain investments hinges on individual financial goals, risk tolerance, and market outlook. Seeking personalized advice from a financial advisor based on your specific circumstances can be beneficial.