Why Staying Invested Matters More Than Trying to Time the Market!

Disclaimer: This post is for educational purposes only. Markets are subject to risk, so please consult your financial advisor before making any investment decisions.

If you have ventured into the world of investing, you are likely familiar with the ongoing debate: Should you attempt to time the market or maintain a long-term investment strategy?

Although this question presents a challenge, the evidence suggests that remaining invested over time generally provides superior outcomes compared to trying to anticipate market fluctuations.

?Here are some of the reasons why a long-term investment approach is often more advantageous:

1. COMPOUND GROWTH: When you put your money to work, it doesn't just stay put—it goes to work for you. As time passes, the profits you make start to create their own profits. It's similar to earning interest on your interest. The longer you stay invested the more your money can build up.
2. MARKET FLUCTUATIONS: Markets can be wild and unpredictable in the short term. But over the long term, they tend to smooth out. By staying invested, you can ride out the rough patches and take advantage of the eventual upswings.
3. PROS OF LONG TERM INVESTMENTS: Patience is key to achieving positive returns with long-term investment. Investments always carry some level of risk, but staying active in them can help mitigate those risks.
4. AVOIDING EMOTIONAL DECISIONS: It's important to keep in mind that markets can be overwhelming. Emotions are often a result of trying to time the market, either by buying when you're excited or by selling when fear sets in. By following a long-term strategy, you can steer clear of these mishaps.

The Pitfalls of Timing the Market:

The idea of attempting to buy low and sell high with the aid of market projections appears great, but it's exceedingly difficult to execute.?

1. Market Unpredictability: Predicting the short-term direction of the market is extremely difficult, even for professionals. Missing just a few of the market's best-performing days can significantly reduce your returns.
2. Stress and Anxiety: Trying to time the market often leads to over-analysing and second-guessing. This increases anxiety and can lead to making poor decisions under pressure.
3. Opportunity Cost: When you pull money out of the market in anticipation of a drop, you may miss out on growth opportunities during periods of market recovery.

Example:

Person 1 (Ramesh) : Timing the Marketing

In the example below, Ramesh is attempting to time the market. He set two stop-losses and achieved one small target in a promising stock. Throughout this process, he experienced multiple emotions. His focus on monitoring the stock led to a minimal return and resulted in higher brokerage fees.

Person 2 (Mukesh): Picks fundamentally strong stocks and stays invested for the long term.

• Mukesh had done thorough research on the potential of the stock and knew that holding it would yield significant gains. Despite witnessing a substantial decline in the stock after investing, he understood the stock's fundamentals and was cautious in his approach.
• He achieved a remarkable 1487.24% return on the stock over 3.5 years. Mukesh made only one entry, which resulted in lower brokerage fees compared to Ramesh, who entered and exited the stock four times.
• Ramesh was charged Short-Term Capital Gains (STCG) tax on his profits, whereas Mukesh, when he eventually books his profit, will be subject to Long-Term Capital Gains (LTCG) tax, which is lower than STCG.
• Mukesh spent significantly less time monitoring the stock and was more focused on his real work, where he had the potential to earn more and invest further, thereby creating wealth for himself and his family.

The Bottom Line.

Research indicates that investors who adopt a long-term approach typically achieve better returns than those who attempt to manipulate the market's timing.?

So, what's the takeaway? The key is to allow your investments to develop properly, not to rely on market timing. Staying grounded through any fluctuations in the market will make the way for a more secure financial future.

Patience is the key that can be fully utilised in investments.?

Don't worry if you're unsure about analysing stocks or choosing the right investment. Sykes & Ray Equities has you covered.

With over 34 years of experience serving our clients, we offer personalised 1-on-1 consultations to help you understand market trends and invest in fundamentally strong stocks. Contact us at 022-61937300 or visit www.sre.co.in for more details. Invest smart with SRE.