Obviously, times like now would’ve led you to wondering whether you should change anything in your equity portfolios or perhaps redeem and reinvest when the ‘dust settles’. But quite often than not, when you ask a good financial advisor about it, he/she would ask you to simply stay put for the “long term”
Everything around wealth creation somehow finds its way to “long-term investing”.
Let me make life simpler. The best way to interpret long-term is ‘almost forever’.
“Our favourite holding period is forever”
Warren Buffett
While we can go on and on about the theory behind benefits of long-term investing, but there’s nothing that can build conviction like factual data can.
If you look at above performance of nifty for last 15 years, it has generated more than 15% returns in 6 out of 15 years. Now, the interesting bit here is that investors who stayed invested through the 15-year period would’ve benefitted from an average annual compounded growth rate of 12% or an absolute return of 422% over the period.
Notably, the best periods came after significant dips and unfortunately most investors would succumb to fear during the bad times and sell-off only to be left as an audience to the recovery. If investors stayed out of markets for the best six years, they would have realised a net absolute loss of ~22%.
Now that you get the drift, here are a couple of more illustrations across market-cap segments.
Those who had invested for 15 years: ~290% absolute returns
Total of all returns excluding the best 6 years: ~- 112%
Key takeaways:
If it were easy to identify the best years from the worst with foresight, there would never be a best or worst year. Best years are when the weak lose heart and sell to the rational who continue to ride the tide.
Making money through investments is more of a waiting game – the more you wait, higher are the chances of a better profitability.
It is almost imperative that investors utilise times like now as opportunities to buy through systematic routes like Systematic Investment Plans & Systematic Transfer Plans.
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