With the varied behavior market shows, many investors tend to show aggressive behavior which leads them into making impulsive decisions. Raj, an aggressive investor had a very active portfolio of about 10 funds most of which were small or mid-cap funds. His investment decision was based mainly on the fact that mid and small-cap funds have behaved quite well in the past few years, not considering that the market works in cycles.
Came the time, the market entered a downward cycle, Raj aggression subsided and he stopped all his SIPs in the funds. moreover, he decided to shift all his money towards debt funds with minimal exposure towards large-cap funds. he was moving towards a conservative approach rather than his earlier aggressive one.

The question here arises, what went wrong?
The two biggest mistakes Raj committed were:
Doing asset allocation without due comprehension
Emotionally reacting to market movements

Doing asset allocation without due comprehension
This is one of the most heinous mistakes an investor can commit. Not properly allocation the assets can jeopardize the investments and hence your money. Understandably, everyone has some inclination towards one fund type but deflecting too much towards one type can be unrewarding.
It is very important that a ratio nearing 60:40 be maintained between equity and debt funds. asset allocation is one of the prior decisions one needs to make while investing. If the start is wrong or inappropriate, the result cannot be good. Another relating factor is the time horizon; asset allocation must be done in accordance with the time horizon.

A simple thumb rule that can be followed is as follows:
Horizon <5 years – 90:10 debt to equity ratio
Horizon is between 6 to 10 years – 60:40 equity to debt ratio
Horizon > 10 years – 40:60 debt to equity ratio

Once, you have corrected your asset allocation, you must periodically review your portfolio for any changes required as per market conditions. Do not visit your portfolio daily as it would make you think emotionally about your investments which is the next big mistake.

Emotionally reacting to market movements
The next mistake is reacting to every market movement emotionally. Parag Parikh, the founder of PPFAS AMC once quoted that “there is nothing like a stock market genius, the investor who exercises control over his emotions while investing is one.” The market works in cycles that Raj had not experienced earlier. Now that when the market has shown a dip, Raj is reacting to it emotionally and is thinking of exiting all the funds at once without considering the long-term and short-term consequences. Shelby Davis the founder of famous firm Davis Selected Advisers once said, “You make most of your money in a bear market, you only realize it later.”

Fundamentally, SIPs were designed so that investors continue investing even during a bear market and stopping a SIP just because there is dip is not a wise decision. Taking an investment decision based on a temporary phase that too when its expected to move that way is not right. Markets are unpredictable, had it been so easy to catch the market’s radar, everyone would have been a billionaire.
The best move now would be to keep that SIP going and wait for another 5 years unless there is an immediate requirement of money. Before you make an investment decision, be sure of your cash flow requirements. Divide your investments in long-term, short-term and emergency funds.