During a period of exceptional stock market returns, such as the market performance of 2024, different types of mutual fund investors might be tempted to stray from their investment plan. It’s only human nature to want more of the action – or even just to get in on the action.

Wanting more

In a rising market, some balanced or growth-oriented investors may want to add exclusively to their equity mutual fund investments, but aiming to capture the upside can have a downside. Say an investor is considering using some high-interest savings from their emergency fund to invest only in equity investments. Typically, you should invest new funds according to your personal asset allocation, not exclusively in one asset class. If this investor increases their allocation to equities, they may push their portfolio’s risk level beyond their accepted risk tolerance.

Not wanting to miss out

Some conservative investors, especially those holding some equities, may see enticing returns and keep thinking about the bull run they’ve been missing out on. But imagine this scenario. A conservative investor takes the plunge and ramps up their portfolio’s allocation to equity funds. Then, soon after, the markets suffer a 10% drop. This investor becomes anxious, worries the markets are in a free fall, and sells their recent investments at a loss. If you stay true to your investment personality, you won’t succumb to the fear of missing out.

Respect your risk tolerance

An investor may be taking a financial and psychological risk by overinvesting in equity funds and raising their portfolio’s risk level beyond their comfort zone. The bottom line is that your portfolio is designed to meet your long-term investment objectives across a variety of market conditions, so you don’t need to change your investing habits when markets rise or fall.