Hello fellow investors
In one place, where investors are planning to invest more money because there is a downfall in the market, there are some investors who are really worried and are asking us if they should sell their existing investments in Equity Mutual Funds/Equity stocks, book their losses and try to move on.
For the ones who are checking their portfolio every day and abusing their stars for investing in Equity, please read through.
Equity investing was always about ‘Long Term – Goals’ for more than 3 years.
Don’t forget the reasons for which you started investing in the first place.
Think Equity – Think Long Term
Your Asset allocation and goal setting will always be the answer to all these questions.
How does it help to invest in Equity for a long duration?
The way to manage market risk in Equity is by investing for a long period of time.
Historical data from the Sensex proves that if you stay invested in Equity for a longer period your probability of loss reduces. Analysis of BSE Sensex data for the past 29 years shows that the probability of loss diminishes as the investment tenure exceeds 5 years. Data shows that investment for a period of 1-year duration on the first trading day between 1990 and 2018 created a loss probability of 25%. The probability of loss goes down further to 4.55% when the investment tenure goes up to 7 years. The benefits of long term investing are clearly visible as the investment tenure grows beyond 10 years and above.
(this graph & numbers above have been taken from business today article-https://www.businesstoday.in/markets/stock-picks/analysis-why-you-should-be-a-long-term-investor-in-equities/story/267408.html )
In the above graph, you can see that as your number of years of investing in equity increases, your probability of loss reduces.
Having said this, one must always check the quality of shares and mutual funds that they have invested in to ensure that they do not fall under the exceptional cases of this analysis.
Further, note that the analysis presented here is based on historical data, so it is not a true predictor of future outcomes. However, we can gather from this analysis that even with the lack of ability to forecast the future, by investing with a long term horizon, an investor is able to better withstand the detrimental effects of volatility, market downturn and bouts of recession, and achieve a positive ROI.
Hence, if you are planning to sell only because you are worried about what is happening with the markets right now, you should look at your goals & asset allocation and decide accordingly.
Don’t try to be speculative right now with the market; just stick to the core values of your investing, do Asset Allocation and long-term investment planning.