Synopsis
This article examines the enduring advantages of maintaining equity investments, highlighting how missing even a few of the market's top-performing days can significantly diminish overall returns. It underscores the necessity of periodically reassessing investment objectives, ensuring portfolio diversification, and persisting with investments during market downturns. The piece advocates for a disciplined, long-term investment approach to foster financial growth and effectively manage market fluctuations.
The Power of Equity Investments
Eddy Elfenbein, a Washington, D.C.-based portfolio manager and editor of the blog Crossing Wall Street, shared this insightful perspective on equities: “Equity is completely different from other asset classes of investment. It’s the only one that captures human ingenuity, which is the ultimate asset.”
This key insight is crucial when dealing with equity market volatility. Unlike other asset classes such as gold and real estate, equity investments uniquely capture human innovation and progress. Unless you believe that human ingenuity and innovation are coming to an end, equity will continue to increase in value over time.
To benefit from this growth, investors simply need clarity about their investment time frame and the patience to reap the rewards. Over time, markets naturally weed out inefficient companies while rewarding those that leverage ingenuity and innovation. By staying invested, investors can benefit from this natural selection process.
The Pitfalls of Market Timing
Attempting to time the market can be detrimental to your investment returns. Consider what happened when COVID-19 hit the world. As nations implemented lockdowns, equity markets suffered severe declines.
On March 23, 2020, the Sensex closed at its lowest point of 25,981. However, by the end of 2020, the market had recovered by an impressive 84%. Just a couple of months later, by February 15, 2021, it had doubled (up 101%) by crossing the 52,000 level. The Sensex had doubled in just 329 days, despite experiencing a drawdown of -38% in CY2020.
While this represents a relatively short period, it clearly demonstrates that staying invested for the long term is a proven strategy for wealth creation, rather than attempting to time market entries and exits.
The Cost of Missing the Best Market Days
An internal study analyzed the returns of the Nifty 50 TRI over a 24-year period (September 2001 – January 2025) to examine the impact of missing the market’s best days.
The data revealed a striking conclusion: if you missed just the best 50 days during this period, your money would compound at less than 1% per year! These best days often coincide with the strongest rallies, which typically occur when fear is at its peak—during corrections or in the early stages of market recoveries.
In contrast, investors who remained fully invested throughout this period earned a CAGR of 15.61%.
To put this in perspective, Rs 10,000 invested in 2001 would have grown to Rs 3.25 lakh over 24 years for investors who stayed the course. However, if you missed the best 50 days, your Rs 10,000 investment would have grown to just Rs 11,550 in the same period!
This highlights the extreme difficulty of predicting market tops and bottoms. Many investors who sell during market crashes struggle to re-enter at the right time and consequently miss the market’s best recovery days.
SIP vs. Lumpsum: Comparing Investment Approaches
When it comes to investing styles, two common approaches stand out: Systematic Investment Plans (SIPs) and lumpsum investments. Each has its merits and considerations.
Let’s examine how these strategies compare in a practical scenario:
Investor A chooses to invest Rs 5,000 monthly through an SIP over a ten-year period, with an expected return of 10% CAGR. After a decade, this disciplined approach grows Investor A’s corpus to Rs 10.07 lakh.
In contrast, Investor B makes a one-time lumpsum investment of Rs 6 lakh (the same total amount Investor A will invest over ten years), also expecting a 10% return. After the same ten-year period, Investor B’s corpus grows significantly more to Rs 15.56 lakh—a difference of Rs 5.48 lakh compared to the SIP approach.
This comparison illustrates the potential advantage of lumpsum investing: the power of having your entire capital working in the market for the maximum possible time. However, this doesn’t mean lumpsum investing is universally better.
The decision between SIP and lumpsum investment should depend on your personal circumstances, including:
- Cash flow availability
- Financial goals
- Risk appetite
- Investment timeline
Risk-averse investors who are uncomfortable investing a large sum at once should consider the SIP route, which provides an excellent way to save and invest, especially for those with a regular income stream.
Strategies for the Current Market Environment
Revisit Your Goals
Constantly tracking market movements can lead to anxiety and impulsive decisions. Instead, review your portfolio annually unless a major financial change occurs in your life.
Ask yourself: Why did I invest in the first place? If your goals are long-term—such as retirement, purchasing a home, or funding children’s education—short-term market fluctuations should not derail your plans.
Diversify Your Portfolio
While stories of the wealthy building fortunes through concentrated investments in single companies are widely celebrated, the failures—those who lost everything—receive far less attention.
For the average investor allocating their hard-earned money, diversification provides crucial risk mitigation. A well-diversified portfolio spread across equities, debt, gold, REITs, real estate, international equities, and other asset classes can help cushion against market downturns.
For example, while equities were down 14% from their peak as of March 13, 2025, gold provided a counterbalance. Gold ETFs/FoFs delivered over 30% returns over the past year as of that date, demonstrating how diversification can protect portfolio value during market volatility.
Continue Your Investment
Market corrections present valuable opportunities to accumulate more units at lower prices, benefiting from rupee cost averaging. However, when averaging, be mindful of concentration risks associated with SIPs in narrow themes or sectors. A well-diversified approach is generally more suitable for averaging strategies.
If you have a lump sum corpus available to invest, putting it all into equities at once could be advantageous, especially considering that markets generally rise over the long term. As illustrated earlier, this approach can potentially yield significantly higher returns compared to spreading investments over time.
Conclusion
As Morgan Housel wisely notes: “No one’s success is proven until they have survived a calamity. Serendipity often masquerades as skill, and the only way to distinguish the two is to see who is still standing after the storm.”
Market downturns of varying degrees and durations can be confusing for investors. What helps navigate these challenging periods is patience, commitment to your financial goals, and understanding the fundamental nature of equities—their ability to capture human innovation and progress over time.
Whether you choose the disciplined approach of SIP investing or the potential higher returns of lumpsum investments, the key to success lies in staying invested for the long term, maintaining a diversified portfolio, and avoiding the temptation to time the market.
During market volatility, consulting with a qualified and trusted advisor can provide invaluable guidance to help you stay the course and continue making progress toward your life goals through thoughtful investing.
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