Why should you not time the market
Investment success or failure is entirely about the investor's psychology. We might say that so and so did badly because of wrong asset choices, mistiming the market or a bad economy, but those are just proximal causes, the symptoms. Investment success or failure is entirely about the investor's psychology. The root cause is always the investor's own mindset, knowledge and attitude.
In fact, it's genuinely fascinating how human beings can simultaneously know something to be true and yet act as if they don't believe it at all.
Compounding is one of those rare things in life that delivers precisely what it promises. It's not a marketing gimmick or a clever sales pitch - it's simply mathematics at work. The arithmetic of money growing upon itself is as reliable as gravity, yet our behavior suggests a strange skepticism about its power.
When we invest, we don't see dramatic results in the first few years. This delayed gratification is particularly challenging in today's world, where we've grown accustomed to immediate result
A monthly investment of Rs 10,000 takes almost a decade before the returns begin to overshadow the invested amount. This is precisely where most investors lose patience. They see the modest gains in the early years and conclude that the game isn't worth playing
What makes this more interesting is how we overestimate what we can achieve in the short term whilst underestimating what's possible in the long term.
Perhaps the solution lies not in more education - we already know these truths - but in developing a deeper belief in processes that take time. It's about cultivating the patience to allow compounding
Let me build a case for how rewarding can a long term be in real term. I have selected 2 funds in two different investment strategies.
1.
DSP
Small Cap Fund in which a monthly SIP of Rs. 2,000 was initiated on 15/06/2010
and continuing till date (a real-life example)
2.
Lump
Sum investment of Rs. 1L in Nippon India Growth Fund (Growth) made during its
public offer (NFO) in October 1995.
|
|
|
FUND |
INVESTOR |
|
INCEPTION |
|
14/06/2007 |
15/06/2010 |
|
Investment mode |
|
|
Monthly SIP of Rs. 2000 |
|
SIP Start Date |
|
|
15/06/2010 |
|
Investment (Cost) |
|
|
Rs.5,86,594 |
|
Status of SIP |
|
|
ACTIVE |
|
Market Value |
|
|
Rs. 22,56,195 |
Nippon India Growth Fund (Growth plan) (Growth Option)
Investment
of Rs. 1L in the fund’s NFO (October 1995) is currently valued at Rs.33,40,950
(CAGR of 12.70%)
Consider
this—
If
you had invested Rs. 5,000/-every month in equities in last 10 years (3650 days) it would
have grown to Rs.12.42 L today.
However, if you had missed 10 best performing days,(out of 3650 days) your corpus would have been worth Rs.8.23L
Further, if you had missed 20 best days, you would be left with Rs. 6.86L only
If missing 10/20 days out of 3650 days can impact your wealth so dramatically, then timing is not a good idea.
Remember, your patience and belief in the market can create some serious wealth. Mutual funds can be the 2nd. earning member of your family when you stop earning.
