Do you find yourself constantly checking the market levels and re-analysing your decision whether to add more equity securities in your portfolio? Or maybe even wondering if it is the right time to invest in mutual funds? One may feel it is better to sit on a pile of cash rather than investing their hard-earned money in different types of investment. You would feel it’s better to wait for a market correction and then invest. However, is that correct approach?
Definitely it’s possible that lower levels in the market would provide lower levels in the market could mean better buying opportunities, but, when you have a long-term investment perspective, say 10 years or more, it changes how you would have usually acted. Here are a few reasons why you must not delay your investment even during a market peak:
- Money lying idle
Let’s face it – the market levels are not in your hands, or in fact, anyone’s hands. So, it could take weeks or even months for the market index to correct. If money is lying idle in your bank account or your almirahs, it might either get spent on frivolous consumption or might be used against some immediate opportunity. Worse, idle money means that the value of your money decreases over time, thanks to inflation. Thus, it is suggested to invest in investment options that offers inflation-beating returns and help you achieve your financial goals.
- If you wait to invest, you might have to invest a bigger portion
Let’s understand this with the help of an example. Let’s assume you stagger your investments through SIPs (systematic investment plan) and invest an amount of Rs 10,000 in equity funds with average returns at 12% p.a. for a period of 20 years. Using, SIP calculator, you’d find that by the end of 20 years, you would accumulate around Rs 1 crore. If you delay your investment by 10 years, assuming that you invest in the same equity fund with average returns at 12% p.a., using SIP return calculator, you’d find that you would need to invest Rs 45,000 per month to achieve the same corpus of Rs 1 crore in a span of 10 years. Even if you delay your investment by merely 1 year, you will still need to shell out approximately 20% more each month to achieve the same amount in 19 years. This is due to the power of compounding.
- It is difficult to accurately time the markets
It is almost next to impossible to accurately predict the workings of the market in the short span. On the other hand, it’s easier to predict and analyse the performance of a particular fund over prolonged duration, say five or ten years. This is why market experts frown at the idea of timing the markets, as most of the time, an investor ends up making significant losses.
Persistence and patience are two virtues that can help you earn significant returns on your investments. So begin with your investments as soon as possible – possibly right away to enjoy the maximum benefits of the power of compounding. Happy investing!