Are you fed up of listening "If you're investing in equities, invest for long term"? Then, read this
You must have heard this many times "Invest in equities for the long term". But what defines long-term? Is it 5 years, 7 years or 10 years? We examined the data for the past 24 years to answer this question.
No one can predict equity returns for even 20 years. Hence, we need to first define the “long term”. Here’s how we looked at it
The chances of negative returns should be zero.
The chances of earning over 10% returns should be very high (80% probability)
We looked at data for the past 24 years.
Here’s what we concluded.
Long term = 7 years - Investors never lost money if they stayed invested for 7 years. (Check table) 82% of the time, they made over 10% returns in a 7-year period.
What happens if you invest for less than 7 years? There are chances that you may lose money. In the past, NIFTY 50 has seen a 55% correction in one year and 15% in three years. (Check image) After 7 years, the LEAST you can expect is FD-like returns from equities.
Trend 3 - The longer you stay invested, the lower the volatility of returns will be. In one year, NIFTY 50 has gone up 108% and fell 55%. That’s a wild swing. But after 7 years, the difference between the highest and the lowest returns starts shrinking.
So, what should you do as an investor?
If you are investing over 60% of your portfolio in equities, give it at least 7 years
Never invest in equities for less than a year
If your investment period is 3-5 years, allocate only 20-30% towards equities
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Source: ET Money