Many young investors in mutual funds suffer from a problem that needs urgent attention: they are constantly seeking motivation to continue their investments in mutual funds. A discussion on why they need to get real and get over this to build wealth.
So what is the problem? Articles such as these:
- Does long-term equity SIP investing work? (106-year analysis)
- Ten-year Nifty SIP returns have reduced by almost 50%
- Do not expect double-digit returns from Nifty Next 50 index funds!
- Myth Busted: SIPs do not reduce risk or enhance returns!
- Do not expect returns from mutual fund SIPs! Do this instead!
- My retirement equity MF portfolio return is 2.75% after 12 years!
Are enough to shake the faith of many investors in equity and equity mutual fund investing. Many turn angry and criticise us for “always being negative about mutual funds”.
What is even more worrying is, each time they see articles such as these:
- Why this is the best time to invest in equity!
- Dear new investor, this is the best time for you to invest in equity
- Why SIP or lump sum investing need not be stopped when markets hit all-time highs!
- Why should I invest in equity mutual funds when there is no guarantee of returns?
They tell us, “thank you for the motivation. We are going to continue our SIPs”!
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If the truth about equity investing – that “there are no guarantees that systematic long term investing will work” – scares you and you are constantly looking for someone to say, “don’t stop investing, keep going, all will be well in the long term”, then I am afraid you on a sticky wicket.
No one can convince you or motivate you more effectively than yourself. Equity investing is hard. Take a look at this Google Finance screenshot of Sensex over the last five years.
The two white lines are equal in length and represent eight months in time. The March 2020 crash and recovery to pre-crash levels took about eight months. The market has been falling from Oct 2021 for almost eight months now. Which looks more dangerous?
This is how equity investing will be. There will be crashes, bull runs and extended sideways movement that will test our patience. So how can we keep investing even if there is no data support to suggest that it will all turn out fine?
What choice do we have? If we quit equity and flee to fixed-income safety, we have guaranteed our failure. There is practically no chance of financial independence at retirement because most of us do not earn enough.
All equity investing offers is a chance. Not a guarantee but a chance. That is just about as reasonable as it gets with life!
But how do we keep ourselves motivated and stay the course? Be emotional about the future, not the present. This is the only reason I was able to invest in equity MFs when my returns were zero from 2008 to 2013. I kept telling myself I had to suffer this pain to ensure I accumulated enough for retirement, as there was no other way out.
This is the gain or loss in my equity MF retirement portfolio.
When the tide turned, and the bull run began, my life changed. All I can say is that we must go through at least one cycle of frustration and euphoria to appreciate that patience is key. If we go through two cycles, we understand the truth about equity investing: Luck and discipline are all there is to it.
The discipline to not just keep investing patiently but to have a plan and stick to it. To understand why you are investing. If this “why” is flimsy and return-based” because you saw others make good returns or fixed deposit returns are poor, then I am afraid your investing innings will be short-lived.
To summarise, find the motivation within to stay the course, but first, have a proper course in mind. If you cannot do this, no one else can help you. Only a few can pull this off, which is how the cookie crumbles.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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