Time in the market is more important than timing the market

There is an old saying that Time in the market is more important than timing the market. The saying is apt in the current situation as the market (Stock Market) falls in March 2020 due to the outbreak of pandemic and subsequent recovery driven by ample liquidity, locally and globally, has kept investors guessing which way the markets are headed going forward.

Some investors have shied away from the equity market with a view that the current recovery is short-lived as there exists a dichotomy in economic growth and market. Now, where the market is headed in the short term is anybody’s guess. However, from a long-term point of view, the Indian equity market holds promise for wealth creation as India’s excellent demographics, abundant natural resources and young and competitive manpower may prove to be huge positives.

Investors have been in such tough situations in the past; the event that is still fresh in our memory being the 2008-09 Global Financial Crisis (GFC); where markets saw a flip flop ride initially which was finally followed by a swift recovery over medium to long term. Investors who tried to time the market during the crisis would have most likely repented while a patient investor who ignored the noise and remained invested would certainly be counting his fortunes today.

The below table shows the Systematic Investment Plan (SIP) of Rs 10,000 per month since 1st April 1998 in the NIFTY 50 Index and their market values during the 2008-09 GFC and after 5 and 10 years.

As can be seen from the above table, the market value of SIP decreased from Rs 39.84 lakh to 32.06 lakh during the Global Financial Crisis. However, someone who would have continued their SIPs would have seen their wealth grow to Rs 53.98 lakh as of September 2013 (after 5 years of the GFC crisis) and Rs 110.74 lakh as of September 2018 (after 10 years of the GFC Crisis).

Currently, we are in a similar situation where the market value of SIP investment which was started 10 years (SIP of Rs 10,000 per month since 1st April 2010 in NIFTY 50 Index) back has seen a fall due to the outbreak of the pandemic.

Investors' behavior becomes important during such times as emotions are at a greater play in situations when there is heightened volatility. Investors ‘Greed’ to chase returns and ‘Fear’ to stay away from falling markets usually keeps them at bay during tough times. The result is that the investor ends up sitting at the fence for a long time to capture the right opportunity.

Predicting short-term market movement can be entertaining but it is as good as squeezing water from a stone. If history has some say, the market tends to reward long-term investors and wealth is created only if the investment is held for a long time and more particularly held during turbulent times. So, where do you feel the market is headed in the long run? Consider your SIP decisions with that in mind.

Disclaimer: Views expressed are personal