Something that nobody tells you about equity investing!
How many times have you heard “Equity investments in the long term give great returns”?
Plenty, I’m sure.
But what if I told you it’s not really true?
Well, I’m sure you follow a lot of people in the finance space. And most of them give the same advice - “Equity investments in the long term give great returns!”
And I say the same thing. They almost always do.
Well..that’s the thing - A LOT of your returns also depend on timing the market.
Yes. I said it.
Timing the market is important, even if you’re investing in strong stocks and Mutual Funds.
Now, by timing the market, I don’t mean you should learn and do technical analysis, or that you should obsess over the Sensex and Nifty before investing.
No, don’t get me wrong.
What I’m saying is, the stock market is a risky place, and although it gives awesome returns, your investment is still volatile, and sometimes, even after being invested in good stocks or mutual funds for more than 5, 7 or 10 years, you may end up with poor returns!
If you’re still not convinced, let’s crunch some data:
Here’s a chart of Nifty returns if you were invested in a simple Nifty Index Fund for 5 years, from 2009 to 2014 (I’ve ignored the expense ratio of the fund for simplicity):
An annual return (CAGR) of 22.27%! Sweet, right?
It is, until you see..
The Nifty chart for April 2008 to April 2014. And the returns are pathetic, to say the least.
Had you invested in a Nifty Index Fund in April 2008 instead of April 2009 and then withdrawn the money in April 2014, you would have made a meagre 5.6% (instead of the “Oh yeah 22.7% man!”) annual return.
And this is not an exception.
You’ll see many instances of this happening for different time periods, where, if you had invested and withdrawn at different times, you made a poor return even if you were invested for the long (or extra long) term. Some more instances below:
Well, that’s the whole point of today’s newsletter:
Don’t blindly believe that long term investment in equity always gives good returns.
Like I said, it almost always does. But you need to be prepared with a strategy so that if your investment goal date coincides with the time when the market is not very favorable, you have other options, or a backup plan, ready.
“But how do I do that, Ankur?” you may ask.
Well, multiple ways:
Along with equity, also invest in debt products which give a fixed, guaranteed income
Withdraw your money if you reach your goal earlier than expected. Don’t get greedy.
Revisit your goal a few weeks/months before your goal date and withdraw it, irrespective of how much you’ve achieved
“But Ankur, how do I determine whether the time is right? And which debt products should I invest in? You only say that FDs give poor returns and should be avoided, so what should I do?”
For starters, Relax 😁
Now, for everything else, I’m doing a free webinar today evening where I’ll talk about strategies for volatile investments, and some good alternatives to equity in the short term in the current scenario. So I’d recommend you sign up for it HERE (if you haven’t already) and attend it.
(The ones who’ve already registered, the link has been emailed to you. In case you haven’t got it, please write back to me on this mail and I’ll send it right away!)
It’s a free webinar, and is not recorded. So make sure you attend it. I can assure you it’ll be worth the one hour on Sunday evening!
And hey! Like I’ve said earlier too, even if you don’t want to know about this, I’d love if you could just drop by and say hi! I’ve never had a face to face interaction with our small community, and would love to have one! Really excited to meet all of you guys! 🙂
So till then, happy investing! 😁
Oh, and also share this with your friends on WhatsApp, so that they know about this too!
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