“When the going gets tough, the tough get going”
That really sums up what it takes for a retail investor to survive in these volatile times – nerves of steel and lots of courage.
If you have poured in a substantial amount of your savings in equity shares or equity mutual funds, and are crumbling under the pressure of the falling markets, all’s not lost.
It’s unanimous: Stay put for the long term
Equities are for the long term. Anyone who has been investing for the long-term should not be affected by the market fluctuations. By long-term I mean 7-9 years.
People should continue holding their investments. The current fall has been too sharp and it will take some time for the market to recover. The pain will be longer this time but the market will recover.
Remember that a loss is not a loss till you sell. So don’t panic simply looking at the notional loss. Hold on to your investments and watch them turn to profits in the long run.
Why long term pays
A little bit of number crunching supports the long-term argument. Had you invested in the BSE Sensex for any one-year period between 1979 and 2005, in 10 out of those 26 years, you would have lost money (see table). But had you stayed invested for more than 10 years, your chances of loss would be almost zero. And that too, you would have made an average return of 17-18% per annum.
Over 1979 to 2005 1 year 3-year 5-year 7-year 10-year 15-year 20-year Probability of loss 10/26 5/24 3/22 3/20 1/17 0/12 0/7
Avg. Return 27% 18% 17% 17% 18% 19% 17%
And for those who thought equity was a place to make the quick buck, its time to revisit this belief. If your goals are any shorter than 5-7 years, then you should have a re-look at your investment avenue. Debt is the better bet for short-term investments when you are looking at steady returns.
First time investors: It’s a good time to begin
If you have been a spectator so far and want to start investing in equities, this is a good time. But that advice comes with its share of caution, Those who haven’t tested the waters as yet should beware of playing the market on a short-term basis, and focus more on long-term investments,
When the market was at 21000, it was more risky to invest but with the crash, the market has certainly become less risky. First timers could invest in index funds. Veterans can experiment with mid cap and large cap stocks.
Some smart moves you can make
If you really want to make your equity investments work for you, follow these simple tips:
i. Your equity investments should give you sound sleep. If it’s giving you sleepless nights then its time for you to have a look at it. Enter the market and remain invested only if you have long-term horizon.
ii. Equity is the only market where people tend to invest when the prices are high, but that is not a healthy policy to follow. With mutual funds, invest in installments, and stick to your plan. With stocks, do your research before you invest. Don’t invest on the basis of tips and recommendations.
iii. Be careful not to invest all the money on day one itself. Ideally, break your investments into smaller parts of say 10 to 15 per cent and complete your deployment over a period of time.
