In 1985, Rakesh Jhunjhunwala started his investment journey in the Indian stock market with ₹5,000 only. By the time he died in 2022, his investment portfolio had grown to ₹11,000 crores.
Impressive, isn’t it?
This isn’t the only success story in the stock market. From Warren Buffett to Radhakishan Damani, you can find numerous examples across the world.
If you’ve ever contemplated investing in the stock market, chances are, you’ve been inspired by one of these stories.
But it’s not easy. For every rags-to-riches story, you’ll find thousands of failures. It is very easy to lose money in the stock market as well.
How can you avoid that?
What is the secret to long-term wealth creation?
It is very simple — stay invested!
The most common mistake that investors tend to make is to withdraw their investments when the market falls. They buy when the price is high and sell when the price is low. Many investors often get anxious during times of market volatility and tend to exit their investments prematurely.
Let’s add some perspective to this. Let’s talk numbers!
In the last 40 years, the BSE Sensex has generated a CAGR (compounded annual growth rate) of approximately 15%. This means that if you had invested ₹1 lakh in the BSE Sensex 40 years ago, it would be worth approximately ₹2.7 crores today!
The stock market can be volatile and unpredictable in the short run. This is where the concept of staying invested comes into play. By staying invested, we mean holding onto your investments for a longer duration, preferably for at least 5-10 years or more. This allows your investments to grow and compound over time, helping you to achieve your long-term financial goals.
Take the historical performance of the Sensex, for instance. It has gone through several ups and downs over the years.
In the year 2008, Sensex witnessed a sharp decline of around 52% due to the global financial crisis. However, investors who stayed invested in the market and held onto their investments were able to recover their losses over time. In fact, Sensex has generated a CAGR of approximately 15% even after accounting for such temporary downturns.
Are you convinced yet?
Allow me to add another argument.
India is one of the fastest-growing economies in the world, with a growing middle class and increasing consumption. Compared to the global economy, we are doing quite well. Businesses are reporting good earnings, and there is an overall bullish sentiment over the entire market. This can lead to higher stock prices and returns for investors.
As the famous investor Warren Buffet once said, “Our favourite holding period is forever”.
Who are we to question his wisdom?
Make sure you pick good companies. You can go with the top performers in the market. Blue chip stocks and large-caps are always a safe pick. If you’re unsure about the stock selection process, you can opt for an equity mutual fund instead.
But make sure you stay invested for the long haul.