Investing is a long-term game, don't freak out over short-term noise

Whenever there's a sideways market or a small dip in the market, investors freak out. A few thoughts.

1. There's always a reason to sell.

If you listen to the news, there's always a reason to sell. But if you took the news seriously, you'd always be 100% in cash.

The current dip from the peak is 8–10%, but we've seen way worse in 2000, 2008, and 2020. 10%+ falls are very common every year.

If equities always went up, they wouldn't be risky, and you would have terrible returns. In equity investing, volatility is the price you pay for higher expected returns.

Investors get scared of volatility for a few reasons.

1. Wrong expectations.

Our most recent experiences influence our expectations. If you start investing in a bull market, you tend to be more bullish and have higher return expectations. Markets don't always go up.

2. Focusing on the short term.

In the last 2 years, the SIP return of Nifty 50 has just been about 3.5%. But over the past 20 years, the SIP returns have been about 13–14%.

You need a very long horizon to make returns in equities. 5–10 years isn't long-term—it's noise!

3. Expect less, save more

Over the long term, is 12%+ guaranteed? No! Nobody knows what the returns will be. All you can do is have reasonable expectations and try to save more if you can. If the returns exceed your expectations, it's a bonus.

The longer your investing horizon, the lower the odds of you having negative returns. Over the long run, you will do well if Indian companies do well and grow their earnings and profitability. Being bullish on Indian equities is a bet on corporate India.

4. Get your asset allocation right

A subpar portfolio you can stick with is better than a perfect portfolio you can't. Asset allocation and diversification are insurance against ignorance, stupidity, and uncertainty.

5. Get out of your own way

In investing, your biggest enemy is your own behavior. Dealing with volatility, seeing your portfolio in red, chasing hot funds, and resisting the urge to keep tinkering with your portfolio is nightmarishly hard.

But if you want to reach your long-term goals, you'll have to fight the urge to do silly things. Good investing outcomes require discipline over the long term. So you'll have to figure out a way to stop being your own worst enemy.

6. Have a plan

When you have a plan, it's easy to deal with things. You don't have to make a comprehensive plan, either. Even a simple written plan with your goals, your investment strategy, your beliefs, and your strategy to deal with uncertainty will help you be disciplined.

7. It's all about the basics

Personal finance is all about getting the basics right. It's not rocket science, and you don't need a Ph.D. All you need to do is get these key things right.