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I invest in equity. Does it mean that I am okay with losing money? No, definitely not!
On the contrary, like everyone else, I too HATE losing money... but with a difference.
I hate losing money in low-return and tax-inefficient investments like Fixed Deposits.
I hate losing money in sub-standard products such as Insurance Policies and Annuities.
I hate losing money in dubious schemes that (falsely) promise to pay high returns.
Therefore, I invest in equities where I can earn superior — in fact, far superior — returns.
Of course, equities are volatile. Forget about returns. There is a "so-called risk" of even losing your CAPITAL. Many investors have indeed become paupers at the stock exchange.
However:
The risk is NOT in the stock markets. The risk is with the investors.
Say I give you a Mercedes or AUDI or BMW to drive. If (a) you don't know how to drive and/or (b) you don't follow the traffic rules, you will surely crash even the best of the cars. The risk is in YOU, not the CAR.
Likewise, I tell you the best Mutual Funds or Stocks to buy. If (a) you don't know how to invest and/or (b) you don't follow the investment rules, you will lose money even in the best of the funds/stocks. The risk is in YOU, not the FUNDS/STOCKS.
However, I know that most of you would be somewhat reluctant to put in the effort required to become financially literate, or be bothered with multiple investment rules.
Like a tip in the stock market, you want an easy and instant solution.
Thankfully, there's one:
Without much further ado, let me share with you the simplest — and the easiest — TRICK of making tons of money in equities, with practically no chance of losing your investment.
First: Hire a good driver. In other words, give your money to the mutual fund manager.
Second: Along with Money, invest TIME too. In other words, invest your money in equities for 10-15 years.
Do this and
(a) not only the probability of you making a loss will drop to almost ZERO,
(b) but you could also end up making really MASSIVE gains.
I am not saying so. The numbers say so. The data analysis reveals this historical FACT.
I did some detailed number crunching on the Nifty 50 Index since its birth in July 1990 till Mar 2021 i.e. a long period of 30+ years.
a) Suppose I did a SIP of Rs.1000 p.m. for 5 years (i.e. 60 months) starting on any given day (i.e. around 6200+ possible start dates). What was the value of my investment after 5 years?
Here's what the data revealed:
Amount invested: Rs.60,000
If I was very lucky: My investment value after 5 years would have been Rs.1,74,000 i.e. more than 37% annualized returns.
If I was terribly unlucky: After 5 years my investment would be down to Rs.45,450 i.e. a loss of around 11.50%.
Average Value after 5 years: Rs.81,500 i.e. 11.6% returns
No. of times money lost: 837 out of 6200 i.e. 13.4% chances of losing money
b) Suppose I did a SIP of Rs.1000 p.m. for 10 years (i.e. 120 months) starting on any given day (i.e. around 5000+ possible start dates). What was the value of my investment after 10 years?
Here's what the data revealed:
Amount invested: Rs.1,20,000
If I was very lucky: My investment value after 10 years would have been Rs.5,08,000 i.e. more than 24% annualized returns
If I was terribly unlucky: After 10 years my investment would be down to Rs.1,03,000 i.e. a loss of mere 3%
Average Value after 10 years: Rs.2,30,000 i.e. 11.8% returns
No. of times money lost: 218 out of 5000 i.e. 4.3% chances of losing money
So, what lessons can we learn from such a long history of the Indian stock markets?
a. Be it the best of the times or the worst, if you stay invested in the market for 10 years or more, there is very little chance that you will lose money (and even if you do, it will be too small to bother you).
b. Typically, you can expect around 12% p.a. returns. This is far better than all other investment options. (Plus, the icing on the cake: Much lower tax liability as compared to most of the other investment options.)
c. Here, I have taken Nifty 50 as an example, which comprises the top 50 companies. Whereas mid-cap and small-cap companies have the potential to deliver even better returns. So, build a well-balanced and diversified portfolio, and you can expect to improve the returns to around 15% or more.
By the way:
Some people would definitely feel... Oh, 10 years! I have to wait for 10 YEARS? They believe that Stock Market is a place where you can double your money in quick time.
However:
Investing for 10+ years is no big deal.
You are anyway doing it now also (e.g. your insurance policy or the PPF). So why not show the same patience and discipline with equities too!!
Just because it is easy to buy and sell equities, doesn't mean you have to do so.
Don't play with equities as if it is a T20 match. Instead, look at it as a Test Match. From time to time, It may appear dull and boring. But in the end, it is indeed very rewarding.
[Image courtesy:Gerd Altmann from Pixabay]