Image source: Real Life Adventures by Gary Wise and Lance Aldrich (h/t Barry Ritholtz, The Big Picture)
2 days ago, I got a call from a friend.
"Hi Sanjiv this is Anu (name changed), do you have a minute?"
"See, I've got this money that I invest in SIPs with Scripbox for my kids. I got my monthly statement and all the funds are losing money. Should I keep the SIPs going? or should I put it somewhere else?"
There it was. The big dilemma. "Should I keep the SIPs going?"
This made me pause and think. Here's a really good friend of mine asking for advice on something that could affect the future well being of her children. I had this mental image of her kids looking at me accusingly 20 years from now.
And then I said "Yes". It was an easy answer. Why?
History tells us that equity investing is a long term venture. That money is made by people who held the course when times were bad. And times are looking bad right now. But, as we all know, the equity markets tend to recover from these bad times.
Is it difficult to keep the faith when you see everyone around you panicking? Yes, but that's the essence of equity investing. In 1992, 2001 and then in 2008 there were far serious crises and the equity investments recovered because the underlying companies led by capable managements weathered the crisis and made profits.
In my friend's case the answer was even easier. Money being invested for kids usually has a horizon of 15-20 years. Sometimes even longer. For retirement, it's 30-40 years. Historically, there has been no asset class that has done better than equity over that period.
So ask yourself the question: How long am I investing for? For most people the answer is between 15-40 years. Invest in equities (we recommend equity mutual funds) if you have at least 5 years (7-8 is better). If the period is shorter, you should not be investing in equity. Keep that amount in an FD with a large bank.