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

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10% losses once a year

Posted by Muthu on January 14, 2017

Wishing you and your family a very happy Pongal.

You all know equity is the best asset class over long run in terms of return.

You also know that the journey is very volatile and the returns are lumpy.

You are convinced of the equity’s long term return potential and that’s why has chosen to go through this volatile journey.

I was going through this blog of Ben Carlson.

He has analysed the S&P 500 data for the period 1928 to 2016, pretty long period by any standards.

He mentions the frequencies in which certain loss thresholds have occurred, on average, in the above time frame:

5% losses three times a year

10% losses once a year

15% losses once every two years

20% losses once every three to four years

I would like to add based on my other readings and Indian markets:

30% losses once a decade

50% losses twice over few decades

We are expecting a long term annualised return of 15% through equity investing in India.

You’ll get this 15%, only after going through periods of such losses. Please note that these losses are only notional as long as you don’t sell in panic.

As Nick Murray says, market declines are temporary and the uptrend is permanent.

This will always hold good as long as the earnings keep growing.

You’ve seen from your own experience how your wealth has grown over last one decade despite going through volatility.

Whenever markets fall by 10% or 20%, revisit this piece.

The corrections are very normal, as normal as how we celebrate Pongal every year on January 14th.

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