Advice For Investors: How To Handle Bull Market Traps, Invest In Gold

'People become guided by emotions, fear of missing out, and greed. They tend to invest in booming sectors that may prove exceptionally expensive.'
'Typically, that represents the peak, and subsequently, they lose substantially.'

In the concluding part of the interview with Prasanna D Zore/Rediff, Vivek Sharma, Smallcase Manager and Investment Head at Estee Advisors, addresses critical questions about alternative asset classes and portfolio construction for 2026.

PART I of the interview: Investors: 'Focus On Income, Not Stocks'

While gold prices have hit an all-time high of Rs 175,000 and are currently trading at 143,000 after a steep and volatile correction, Sharma advocates restraint on gold despite its stellar recent performance. He also champions Real Estate Investment Trusts over direct property purchases, and establishes clear emergency fund guidelines ranging from six to fifteen months of expenses.

He identifies the twin dangers that investors face during bull markets -- premature profit-booking from anxiety and excessive risk-taking from euphoria -- while cautioning against portfolio management based on market predictions.

His overarching message remains consistent: India's structural growth trajectory provides the foundation for equity wealth creation, provided investors maintain disciplined processes rather than attempting to outsmart short-term market movements.

With gold having crashed more than 20% from its all-time high and choppy equity markets following the Union Budget 2026 proposals, Sharma's advice comes in handy for long-term investors who are not too bothered about short-term volatility and sharp market falls.

Should you invest in gold now?

Gold prices have risen sharply throughout 2025. Does gold still merit inclusion in a typical household portfolio?

Examining long-term data, gold proves as volatile as equity. Regarding risk, you're assuming comparable risk to equity, yet returns prove inferior. Obviously, gold has performed phenomenally over the past five years, but long-term data demonstrates it cannot compete with equity.

Gold's utility lies in serving as an inflation hedge and portfolio protection during adverse periods. Maintaining approximately 10% gold allocation proves reasonable. However, if someone currently holds zero gold allocation, I wouldn't recommend immediately shifting to 10% given gold's substantial recent rally.

Adding lump sum capital to gold at this stage definitely isn't recommended. Over the long term, maintain 10% gold allocation -- that's sufficient.

For investors contemplating increased gold portfolio allocation via ETFs or other instruments, what would you advise?

I recommend examining long-term perspectives. Two to three years represents a relatively short timeframe. Numerous sectors or themes have performed admirably over short periods, but eventually, these themes dissipate. As long-term investors, you shouldn't pursue shorter-term themes.

Perhaps collaborate with a financial adviser who can allocate your capital judiciously across multiple asset classes. However, making decisions based on the past two to three years' performance isn't prudent investing. This pattern represents precisely the type of error investors make.

Investors become their own worst adversaries through fear of missing out -- recently with gold, previously with public sector undertakings or defence stocks.

Frequently, at trend peaks, numerous asset management companies launch new fund offers. Recall the defence-related (new fund) offers (NFOs) some time ago -- almost everyone now sits at a loss because they launched at the peak. I don't believe you should adopt an aggressive stance on gold allocation at current levels.

How to build an emergency fund

How much capital should average investors maintain in fixed deposits or debt funds for safety?

Beyond your asset allocation, you should maintain an emergency fund covering approximately six months of expenses. If your monthly expenses total Rs 50,000, you should maintain approximately Rs 3 lakh in extremely safe instruments where you prioritise safety and availability -- accessible within one or two days.

For young professionals, approximately six times monthly expenses suffices.

For individuals in their forties with greater family obligations, this should increase to 12 to 15 months' expenses.

I observe many individuals in their forties losing employment, and securing new positions quickly proves exceptionally difficult. They should definitely maintain 12 to 15 months of monthly expenses in their emergency fund.

Is purchasing property advisable or better avoided in 2026?

If you're purchasing property for personal use, that represents a different scenario. However, if you're purchasing purely for investment purposes, I believe superior avenues exist through mutual funds.

You can obtain excellent real estate exposure through Real Estate Investment Trusts, which primarily invest in commercial office buildings -- Grade A properties where high-quality corporations lease space.

You receive yields (pre-tax income) of approximately 5% to 6%, which proves quite attractive because residential real estate yields merely 2% to 2.5%. The rental yield proves superior with no property management hassle.

I personally favour real estate through Real Estate Investment Trusts. India's positioning means office demand proves exceptionally healthy across all major metropolitan areas.

How should retail investors participate in Real Estate Investment Trusts?

Consider a slightly longer timeframe -- perhaps two to three years -- and read about Real Estate Investment Trusts. They function precisely like mutual funds. They help you invest your capital (in the real estate sector) because you lack the time, interest, or expertise to select individual properties.

You're entrusting your money to a company that invests broadly across India in multiple properties. They manage all lease agreements and property management, charging a modest fee while passing all rental yields and property appreciation to you.

I'd suggest working with a financial adviser who can guide appropriate allocation, then over subsequent quarters, reach that specific allocation.

Mistakes investors should avoid

What are the most significant mistakes Indian investors typically make during bull markets?

Two mistakes occur at opposite extremes. One category comprises investors who become extremely anxious. They have accumulated profits and feel markets can only decline from peaks. They book profits prematurely.

Maintaining a long-term perspective -- over the next decade, markets can easily triple -- but when they contemplate very short-term movements, they book profits excessively early.

At the opposite extreme, people become guided by emotions, fear of missing out, and greed. They tend to invest in booming sectors that may prove exceptionally expensive.

There's substantial hype, and they feel this represents the optimal wealth creation method -- sectors or asset classes that have generated remarkable returns over recent years. They tend to invest there.

Typically, that represents the peak, and subsequently, they lose substantially.

Many analysts predict substantial market corrections in 2026. How should investors adjust their portfolios?

This exemplifies precisely what investors shouldn't do -- manage portfolios based on someone's predictions. Predictions prove incorrect most of the time. You should manage your capital based on personal goals and personal risk appetite.

If you possess a longer-term outlook and markets correct, you shouldn't concern yourself unduly. You can increase equity allocation at those levels, for superior returns.

However, if you have financial obligations in the next two to three years, maintain the majority of your capital in extremely safe assets, predominantly in debt funds where you'll receive reasonable returns without excessive risk.

Your asset allocation depends on your risk profile and when you need capital. It shouldn't be based on someone's predictions.

How to generate long-term wealth

If you had to employ one straightforward rule for generating wealth steadily over the next decade, what would it be?

India represents the only major economy apart from the United States growing at a very reasonable pace. If the Indian economy is growing as it is, there's no denying that our equity markets will also perform well.

You cannot predict which specific sector or companies will perform well. Therefore, leave that decision to fund managers and entrust your capital to these mutual funds with appropriate asset allocation.

Focus on the process, not on prediction.

Every month, allocate a specific amount to investment, and every year when you receive increments or bonuses, don't increase your expenses at that same pace. Continue increasing your savings and investments annually.

Don't focus on which specific sector or stock will perform well. That's the fund manager's responsibility. If you continue executing systematic investment plans in a disciplined manner and maintain a diversified portfolio, you'll perform quite well.

If you maintain that ten-year timeframe, there's considerably less likelihood that you'd commit those mistakes people make when examining short-term results.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.