“Man, the nifty is up! Bhai, paise nikaal leta hoon! (Brother, let me take out my money) For the first time, I am seeing a net positive in my. Let me save my before the market falls and I lose what I got”
A friend who had beenin for about 4 years said this.
He wants to withdraw from hisbecause he had seen some falls in his value, and he isn’t happy with his overall returns. He doesn’t want a repeat of the experience he had during market falls and feels he should save his gains before the market takes them away.
This is something that a lot of investors have considered in this year ashave become relatively more popular only in the last 2-3 years. So why do investors think about withdrawing?
From our experience the primary reason is fear of losing their capital, especially when new investors have seen more red rather than green in their.
is undoubtedly a volatile asset class. Just look at how the daily returns of one moved in 2017.
What this means is that for those watching their , it can feel like the NAV moves like an erratic heartbeat. What one needs to look at is cumulative returns over a period of time (shown below for the same year) but it is hard to see that during any given month or day because all we actually experience is the market jumping up and down. NAV values daily
Until unless you are a seasoned financial professional this experience is hard to digest. In fact, the best investors in the world don’t even consider daily shifts in their values.
However, why do youin in the first place?
An ideal long-term investor believe in the economy of the country and more importantly, in the future of its listed companies.in because they
A goodis a representation of the best companies in that economy. The themselves are managed by some of the most competent individuals. It’s their job to watch these companies and track the made in them.
Also, economies, and the companies that make up the economy, don’t grow in just one year or two. They need time to grow. Just like you do, to grow in your career. This is how the has grown:
Thein 1990 was at 1048. By 31 October 2019, it was at 40,129. The is about 13%. Some of the best delivered almost 20% in the same time frame and even a relatively underperforming fund delivered 9.9% annualised return.
The longer your holding period in a good portfolio the lesser is the probability of losing money and greater the probability of higher expected returns.
So, what about the risk of losing money?
The longer your holding period in a goodthe lesser is the probability of losing money and greater the probability of higher expected returns.
The use of the word probability is extremely important here as returns incannot be assured. Anyone promising you “assured returns” in association with an in does not deserve your money.
However, if the past is any indicator then the chance that you would lose money goes down dramatically to touch nearly zero over a certain period. The table below shows, based on history, what was the chance of a loss in yourvalue, depending on your holding period, between 2008 and October 2019.
This analysis considers anin the as a proxy for an and also factors in the fact that an investor could have started at the end of any month and stayed invested for the respective timeframe (12 months, 24 months, 36 months, 48 months, 60 months, 72 months and so on) . What it tells us is that the possibility of getting a positive return is highest after holding for at least 5 years. 7 years is ideal.
So, if you are quite unlikely to see a negative return after being in the market for 5 years or more, then what’s the point of withdrawing, until unless you really need the money and there is no other avenue?
You have already done the difficult part which is the uphill climb. You have been through the tough times for your . Considering how close you are to reaching a stage where there is an extremely low probability of seeing negative returns, it hardly makes sense to withdraw now.
Would you chop a tree which will bear fruits in the future only because it took a while for the seed to grow into a sapling? Give yourtime, stay in for at least 5-7 years before you pass judgement.