Skip to main content

Stocks beat other investments in long term

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Returns may be lumpy and volatile. But longer the hold, higher the returns and lower the risks


Stock market returns beat other investments in the long term, but the returns are lumpy and volatile. It can take years for equity investments to pay. There are always long periods of drawdown. There is no way to determine the magnitude or duration of a trend in either direction.

How can somebody who is not a dedicated market- watcher cut down the risks and boost returns at the same time? The answer appears to be simple, but its difficult to implement psychologically:

1) Buy a diversified basket of stocks such as a market index.

2) Hold investments for a long time.

3) Use valuation- based filters to weight market exposure.

To implement this strategy requires patience and faith, rather than vast IQ. The investor must believe that the losses incurred during the inevitable downturns will be less than the gains during uptrends. It is psychologically hard to maintain this attitude in the middle of a long bear market.

Now for some statistics, which validate the advice above. In June 1991, the Sensex was at 1,300 when the New Economic Policy was announced by Finance Minister Manmohan Singh. In March 2013, the Sensex is at about 19,000. That is a CAGR of roughly 13 per cent across almost 22 years and it beats even the artificially- hiked provident fund return by a massive margin.

This 22- year span saw many alternating bull and bear markets. There was a spurt in prices between June 1991- March 1992. The next bull- market was from April 1993 till September 1994. There was a third big bull market in 1999- 2000 and the biggest bull market in Indian history started in May 2003 and continued till January 2008. There have been two more bullish periods since, between March 2009- November 2010 and between January 2012- to the current date.

Of course there were corrections within both the bull and bear markets. The bull runs accounted collectively for about 130 months out of the 261 months that have passed since June 1992. Roughly half the time, the market range- traded, or logged losses.

Several of the bearish periods have seen drawdowns of between 40- 65 per cent.

The 13 per cent CAGR mentioned above is a point- to- point theoretical benchmark. It would be realistic only if somebody had bought once in June 1991 and held until March 2013. A rolling return profile offer more realistic insights into actual risks and rewards.

We may assume, for example, that an investor buys every month and sells each position a year later. That is, he buys in January 2012 and sells in Jan 2013. This is equivalent to a strategy where the investor buys and holds for one year.

Between June 1991- March 2013, the average rolling return comes to about 15 per cent per annum for these one- year rolling " trades". There are 97 losing one- year trades, versus 153 winning one- year trades. The investor saw a positive payoff roughly three times for every two losses.

Similarly, a two- year rolling strategy yields an average annualised average return of 15 per cent. But there are only 82 losing trades to 156 winning trades. A three- year roller yields 16.5 per cent, with 177 wins to 49 losses. A four- year roller yields 17 per cent with 169 gains to 46 losses. A five year roller yields 18.5 per cent with 170 gains to 33 losses.

The trend is clear. The longer the hold, higher the returns and lower the risks. This can be directly compared to recurring deposit schemes. The differential in favour of equity is huge.

Valuation filters help an investor further reduce risks. For example, the average monthly PE of the Sensex is 21, with a median of 18.7 and a standard deviation of 8.3. The median shows that the Sensex traded below 18.7 half the time. There are more high- valuation months ( 37 months were above PE 29 -29 is one standard deviation above average) versus low valuation months ( 17 months were below PE13 - one standard deviation below average).

If an investor buys more when the PE is below 18 and less when the index is above PE30, his returns are further boosted. The number of losing trades also reduces if there are no buys above PE37. Dividend yield has also been ignored above. It adds about 1.4 per cent annually. That is significant, especially if re- invested and compounded.

The statistics indicate that an investor doesnt need to be smart or knowledgeable, so long as hes disciplined and patient. Buy a diversified basket or an index fund for the longterm and use a basic valuation filter. The return: risk ratio will automatically get better without much required in the way of judgement or portfolio monitoring.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual Funds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now