As I write this, the Sensex is back where it was a little over two years ago. For most young people who started investing in the last few years, this could be their longest “bear market”. Congratulations.
As expected, doubt has begun to creep into several investors’ minds. Should I exit? Should I pause investing? Should I switch to fixed income, etc.? First, index investing will be criticised as lacking “active management”, then equity will be looked down upon. Only in a bear market do investors and content creators appreciate the importance of diversification. Some use this opportunity to sell their products, such as AIFs, SIFs, and Gifty City.
Has anything changed in the equity asset class? No. Bear markets are the norm, not the exception, as shown by the red regions on the graph below.
Each 0.5 graduation is a 3.16X increase in the Sensex price or a 216% increase. See Why are stock market graphs plotted in logarithmic scale?
Anyone who has been in the markets long enough, or who has taken the time to analyse market risks, will know that returns will always come in clumps. Suddenly, there would be a downpour and then a drought.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
If you run away from the drought, you are likely to miss the downpour. When they say, “time in the market is better than timing the market”, they mean the best way to time the market is to be in the market! Why “time in the market” is not different from “timing the market”!
As Dolly Parton put it, if you want the rainbow, you need to put up with the rain. If you want to build life-changing wealth, you need to face these downturns. As long as you can afford to face them, meaning your needs are far away from today, you need a good chunk of equity in your portfolio. So stay calm and stay invested in a goal-based, reasonably diversified equity-oriented portfolio with a risk-management plan in place.
I recently mentioned in an interview that we need a sustained bear market to weed out frivolous market participants. Many criticised me for fear-mongering. I was simply trying to be practical. Most young people today do not appreciate market risks. The sooner they do, the better off they will be. Also see: Pessimism Isn’t Anti-Equity: It’s Risk Management.
Equity investing is not for everyone, and not everyone will succeed in it. Only the resilient will survive when the going gets tough.