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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Updated: Time or Timing

Posted by Muthu on December 18, 2015

After a long gap, I’ve updated the ‘Time or Timing’ page in our portal. I’m sharing the updated content below:

If you’ve invested Rs.1 lakh in Sensex on 1’st January 1990 and did not disturb it until 30th November 2015 (26 years, 25.91 to be precise) it would have multiplied 33 times and become Rs.33.38 lakhs. This works out to an annualized return of 14.49%.

We saw that over 26 years Sensex got multiplied by 33 times. Let us assume you missed the best 40 days spread over the above 26 year period. Then your money would have multiplied by mere 2 times instead of 33 times. 40 days over 26 year period is just 1.5 days per year! So hopping in and out of the market can dent your returns very significantly. Regular investing and staying for a long time (which would include the best days as well) is the way to build sustainable wealth.

Please see the complete data below:

Stayed invested for 26 years: 33 times, 14.49% per annum

Missed 10 best days: 12 times, 10.14% p.a

Missed 20 best days: 6 times, 7.22% p.a

Missed 30 best days: 3 times, 4.75% p.a

Missed 40 best days: 2 times, 2.54% p.a

It is clear that if you’ve even missed the 10 best days, instead of getting 33 times your wealth, you would have got only 12 times. Just missing 10 best days in nearly 3 decades costs you so much.

It is interesting to note that by just missing 10 or 20 best days over 26 year period; market gives you only fixed deposit kind of return.

For missing 30 or 40 best days; you just get savings bank account returns.

Markets tend to go up sharply on a few days, then consolidate for long periods and then go up sharply again over a few days. So just missing these days can bring down your returns drastically. It is impossible to predict the best days in advance and we would come to know of the same only in hindsight.

I also read somewhere that some of the best days of the markets come immediately after its worst days. It looks like many a time the worst and best days are lumped together in a short period of time.

There is no way to prevent worst days and time the best days.

Not many get rich from stock markets because they lack patience, hop in and out, losing many of the best days.

So don’t try to time your entry into the market. SIP is the way. What matters is how long you stay invested so that you catch as many best days as you can and maximize your returns.

Start early. Invest regularly. Stay the course. Get wealthy.

Staying the course without disturbing long term compounding is the key.

All the best.

(Data source: PPFAS mutual fund’s investor education material based on Value Research data).

One Response to “Updated: Time or Timing”

  1. rakesh ojha said

    Hi Muthu, Though I agree with much of what you say about owning stocks for long term, there are certain situations when there is lot of wealth destruction in stocks. Like in great depression period in in 1930’s. There are some very good people warning about such a possibility in western highly leveraged financial markets leading to a deflationary collapse. India will not be immune to such an event as it is integrated with the world. There has been inflow of 224 billion dollars in the Indian markets (both equity and debt) in last 20 years when capital markets opened up leading to 25% ownership of Indian stock market by foreigners. from zero % before 1992. Sensex at 30,000 this year could be top from a long advance since 1979 (5th wave top in Elliot wave terms). There is very very strong consensus and conviction among advisors in India towards stocks. Such strong conviction in one direction also suggests a “top”. Also central banks own ETF’s as a part of QE. This also suggests a strong conviction in stocks There is a very good chance that such a strong conviction towards stocks could be tested in short term. How ever I am happy to note that suggest a time frame of 10-20 years in equities. But what are your thoughts on avoiding such a deflationary world wide crash scenario? particularly to people who are in 40’s or 50’s with substantial exposure to stocks.

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