Wondering what to do in a volatile market?? read this

Over the long run, equities have been known to outperform most other asset classes, yet rapid changes in stock prices, whether upwards or downwards, may tempt investors to exit the market, and deviate from their long-term financial plans. However, history suggests that staying invested in the market through volatile periods can be beneficial in the long run, as demonstrated by the following chart :

The data demonstrates that an investor who, through attempting to time the market, misses just the ten best days of market returns in the last ten years, will make considerably less than one who remains invested through volatile periods. This also demonstrates that volatile periods can account for a large part of upward changes in market levels. While it is uncertain whether the current upswing in market levels is sustainable in the short-term, for the medium-term, there have been no changes in economic fundamentals, which remain positive. India’s economy is still fore casted to grow on track, with FY08 forecasts ranging from between 8% to 8.5%. In this volatile market, the Systematic Investment Plan (SIP) method continues to be a viable way of investing in stocks through a professionally managed mutual fund, regardless of current levels. It is also important to distinguish between the run-up in the Sensex (to a great extent driven by just 5 out of the 30 stocks in the index), and the situation in the broader market, where there continues to be long-term stock picking opportunities that active fund managers can capitalise on.

Source - Fidelity AMC Newsletter