All investors seem to agree that equity valuations are not to their liking. They would prefer to buy when valuations are cheaper. Yet, they don’t want to stay away and are willing to compromise valuations to participate. More interestingly, they seem to be avoiding debt exactly when it is a good decision.

Investors are averse to debt because of taxation concerns. The right way to look at this would be to evaluate relative risk vis-a-vis equity. With equities, there is a significant downside and limited upside left. Whereas with debt, the upside is decent and the downside is limited.

Investors should be looking to protect returns made in equity. Debt should be a natural allocation choice. Investors must take profits from equity and park monies in debt. Especially if these profits have come from the frothy small and midcap space.

Though the road to safety looks very obvious, we hardly see any traffic on it. Investors who respect caution should take this road early and protect gains adequately. Now is the time to do it.

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