The equity market has been falling since September 2024. If you are losing patience and thinking about stopping or redeeming your equity investments, don’t! Now is the best time to invest – as long as your goals are far away!
Even if we buy into the (incorrect*) belief that “over the long term, the stock market will move up always”, equity investing is like climbing an unknown, uneven staircase; we do not know how wide each step is, and we do not know when we will see the next step (ignoring the potholes within each step),* See: Stock market always moves up in the long term, but returns move up and down!
This can be illustrated with a log graph of the Sensex. See Sensex at 50,000 – lessons from the 42-year journey, and Are you ready to climb the Sensex Staircase?!
So the stock market is like a mercurial batsman (e.g. Sehwag). It can explode to provide magical life-changing returns (e.g. from 2003 to 2008; 2020-2022) or can go through a slump for years (the Sensex was flat for ten years after the Harshad Mehta scam**)
** Many people believe such a thing will never happen again in India as it is now economically stronger. A majority govt is also a key driver of stock market gains. So if there is a hung assembly, the return over the next few years can be quite poor. In other words, there are no guarantees, and the future is unknown.
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So the secret behind successful stock market investing is to start early and keep investing. When the bumper returns arrive, your life could change. Accumulate as much market-linked capital as possible to benefit from an upswing.
So everyone is waiting for such a return in one way or another and timing the market! See: Why “time in the market: is not different from “timing the market”!
What we are going through now is similar to the aftermath of the 2008 crash; after the recovery came a period of high inflation and years of sideways markets. We are going through something similar now. It took five years to recover last time. We don’t know how long it will last this time. All we can do is hope it does not take that long.
The current sideways market is the best time to invest in equity for those whose needs are several years away. To accumulate stock and mutual fund units as much as possible but within a planned asset allocation. Sooner or later, the market will move up, and it will change your life. Yes, that is me being hopeful for a change! Hope is the fuel on which the best-laid plans run.
As I keep saying, we are all victims of our good and bad experiences, and so am I. Again with the benefit of hindsight, I consider myself lucky to have started my journey with equity mutual funds when the markets were crashing in 2008, and this gave me no returns for the next five years. No, I did not buy the dip! I started with a SIP of Rs. 1500.
During these years, I was investing like crazy (quite unaware of anything happening around me). When the market started moving, I had to rub my eyes in disbelief to see my gains. My daily profit was equal to my monthly investment amount. See the chart below.
This is the year-on-year increase in my investment. Notice that by sheer luck, the huge investment increase coincided with the portfolio’s sideways movement.
Note: The amount I invest each month has continuously increased. The above chart represents the increase in investment wrt to the initial investment.
You can read more about the chart and 14 Years of Mutual Fund Investing: My Journey and lessons-learned. An updated portfolio growth chart is here: Portfolio Audit 2024: The annual review of my goal-based investments.
Two events changed my social station. The late 2013 bull run took me to the threshold of financial independence. We shall define this as 30X or 30 times current annual expenses. This means a corpus will last for 30 years if the inflation rate is the same as the rate of return.
The 2020-2022 bull run strengthened the financial independence (FI) status. During this time, my annual expenses increased by about 50%. The FI status is not yet cemented because 60% of the capital is (equity) market-linked, and any crash and/or poor sequence of returns can change it.
That aside, the key point is that the corpus grew only due to systematic investing regardless of market levels and an aggressive increase in investments yearly. The rate at which my investments grew is higher than the market-linked return. See Why increasing investments each year is crucial for financial freedom.
Many people naively believe that wealth is built with returns. Nothing could be further than the truth. Wealth is built with money. You need money to make money, So young earners should focus on skills that will increase their income.
So please do not worry about missed opportunities (the equity market occasionally offers plenty of good and bad experiences). Do not worry about where the market is currently heading.
- Be clear about your goal.
- Choose a suitable asset allocation.
- Invest as per that asset allocation like a machine.
- Increase investments as much as possible.
- Learn how to manage risk in your portfolio in a goal-based manner.
- Rebalance your portfolio at least when the deviation in asset allocation is 5% or more.
- Systematically reduced equity exposure well before you need the money.
- Once you start, portfolio maintenance should take 30 minutes a year (yes, a year!).
The freefincal robo advisor tool creates a plan for you that considers all these factors.