223) When to Switch Equity Fund

223) When to Switch In and Out of Equity Funds?

A common question of Unit Trust investors.

When is the BEST time to switch in and out of an Equity Fund?

Let's look at the diagram below.

It will be best to invest into equity fund at point A because the stock market increases thereafter. The equity funds made a good return.

However, if you invest at point B, the stock market had increased and still increased thereafter. It is still good, but not as good as at point A.

What if you invest at point C? After you invest, the stock market drops. You will see losses in your investments.

So, the question you want to know is when is the best time to switch from equity to bond funds?

From the diagram above,
Best time to switch from bond to equity is at point A (lowest)
Best time to switch from equity to bond is at point C.(highest)

What if you had switched from equity to bond fund at point B?
Your investment still makes more money, but not as much as if you stayed on till point C.

What if you had switched from bond to equity fund at point C?
Your investment will lose money as equity drops thereafter.

However, if you had invested at point C, you can still stay invested until the stock market drop to point D and increased up again to point E.

It is easy to decide in the hindsight, after the stock market had moved. However, it is very difficult to decide at the current moment on what the stock market will do next from today onwards.

Equity funds will go higher in the long term. If your investment horizon is long term, do not be affected by the short term stock market volatility.

Below is a diagram of a long term investment comparing bond fund vs equity fund.

Only do the switching if you are sure of the stock market next direction.
If it is going to drop, switch from equity fund to bond fund to preserve your capital.
If it is going to increase, switch from bond fund to equity fund to ride on the good returns.

Do note that the fund managers are already actively managing your investments.
If you are not familiar with the stock market, let the fund manager do their job managing your investments.

Switching in and out of the funds can affect your overall returns and incur additional switching charges.

In conclusion,
Stay invested for the long term as per your investment goal and time horizon.

For more related articles:

222) Does Bond Fund Move Opposite to Equity Fund?
http://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html


22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

46) Why You Should Diversify Into Different Fund Types?
http://highlevelrules.blogspot.com/2017/07/why-you-should-diversify-into-different.html