Big Rewards Await Those Who Stay Invested For Long

The emphasis on investing discipline in the stock market is never overstated. Yet, temporary situations often force us to withdraw even before our investments mature. In truth, regardless of when we start investing, the winner always stays put through the toughest of times.

As is evident from the five-, eight-, and 10-year returns of the Nifty 50 Index, every time is always the perfect time to invest in the market.

Investors who joined the market at different times have all made money. So, the common belief that a bigger reward awaits those who time the market or choose to wait is a fallacy. 

All Made Money, Whatever The Time Of Entry

Let’s say, for instance, that a person who invested in a Nifty 50 index fund in January 2000 would have earned 21 per cent return in five years, and 30 per cent and 20 per cent in eight years and 10 years, respectively. 

Likewise, if a person invested in a plan in January 2004, he would have earned a 5 per cent return in five years and 9 per cent in eight years. Similarly, the returns would have been 12 per cent in 10 years.

It shows that the time of entry into the market is less of a factor for returns. Everyone who invested in the said timeframe earned more than what they invested. Thus, the market rewards those who are patient.

Clearly, this long-term approach that helps avert falling into an emotional trap of despair and negativity can help investors comfortably ride through the short-term volatility of the market. 

Let’s consider another timespan when the Nifty 50 Index funds generated relatively lower returns in a five-year horizon.

Those who invested in a Nifty 50 fund in January 2007 may have earned 2 per cent return, but the same fund would have fetched them 13 per cent return had they waited for eight years, and 9 per cent in 10 years.

Similarly, those who invested in June in the same year would have bagged 3 per cent in five years, 12 per cent in eight years, and 11 per cent in 10 years. 

Of course, many investors may have dashed for the exit door with the fund’s apparent slow growth by mid-2007, but those who held their ground and overcame the fear of loss may have laughed all the way to the bank.

It shows that informed, intelligent investors know how to conquer their fears. By staying put with their original plan, they not only increased their chance of higher returns, but also emerged as winners in the end.

In addition, it may be wise to de-risk the portfolio at least 6-8 months before your goal and not exit to see lower returns. 

Equity can compensate for lost ground in the shortest possible time. For example, those who had invested in a Nifty 50 fund in June 2015, saw a 2 per cent return in five years, but in the sixth year, the return was a whopping 15 per cent, which highlights the power of equity.

Enduring Initial 3 Punches

Arun Kumar, vice president and head of research at FundsIndia, an online investment platform, says: “Equity systematic investment plans (SIPs) have historically delivered good returns over a 7-10 year timeframe. But despite that, most of us give up on our equity SIPs midway. This is because we are unprepared for the three punches that an equity SIP delivers in the initial years. 

“The three temporary phases are the disappointment phase, which is the ‘I expected far more’ phase, where returns temporarily become 7-10 per cent. The second is the irritation phase where the sentiment is ‘My FD (fixed deposit) would have done better’. Here, the returns temporarily become 0-7 per cent. Last, there is the panic phase, which is ‘my portfolio value is lower than what I invested’, where the returns temporarily become negative,” he says.

Kumar adds: “This happens in almost every equity SIP investors’ journey, more frequently during the initial years. The key here is to patiently continue your SIP for another 1–3 years, as it usually leads to a dramatic recovery in performance.”