There was a drastic fall in stock markets between 2008 and 2009 and with it, so did retail individual investors’ confidence. Since then, the market has been a roller coaster ride, leaving most investors scared to dip their toe in.
Prior to the Great Recession, most people viewed the markets as a great way to maximize returns on their capital, but with a lost decade of equity returns, many have been left skeptical. Some now believe it is a better idea to keep their money in a savings account or Fixed Deposit until the market “recovers”, but they’re wrong. Here’s why:
History has shown us that, over the long run, stocks have performed strongly. Sensex has grown from 1,000 to 20,000 in the last 20 years. This indicates that long-term investment in the stock market yields higher returns. Sensex has grown 20 fold in the last 20 years which is pretty good returns. For more analysis, look at Sensex PE chart for last 20 years. As an investor, you shouldn’t be troubled by a couple years of rockiness and instead should be looking at the long term.
As Warren Buffett says, “Be greedy when others are fearful”. Investors miss out on great opportunities by sitting on the sidelines when things get dicey. That’s often the best time to invest. For example, Nifty chart since 1998. It has grown 6 fold in the last 15 years. It gives a good idea of how much Nifty has rallied in the last decade. Discuss levels to buy Nifty and Sell Nifty and leverage its rally. I’m not saying it’s easy to know when to buy, but even if you bought in half way along the ride with long term thinking, you would have done very well.
Stocks can be a great source of income. By buying established companies that pay a dividend, you instantly get a source of income from your investments that will often be at a similar percentage to your savings account or Certificate of Deposit, if not better. As an added bonus, by reinvesting dividends, you’ll compound your returns and that can make a huge difference to your returns over the long run.
Liquidity, a unique feature of investment in Stock Markets. Unlike other investment options such as real estate it is highly organised and liquid. It is also free from the features like exit load, prematurity charges etc.
Stock market history has clearly benefited the patient ones among us. The sooner you can start building up your portfolio through some good advisor/broker by paying in a small amount each month, the better off you’ll be in the long term.
Over time, inflation will decrease the value of your Rupee. The money you save under your mattress today won’t go as far ten, twenty, or thirty years from now. Investing is a great way to combat this.
It’s for these six reasons that make the stock market a worthwhile place to invest your capital.
What do you think?
