The saying “time in the market is more important than timing the market” means that staying invested in the market for a long time rather than trying to time your investments to buy and sell at the right moments is generally better.
The stock market can be volatile and unpredictable, and trying to time the market by buying and selling stocks based on short-term fluctuations can be risky. Even the most skilled investors and traders find it difficult to consistently time the market correctly.
On the other hand, staying invested in the market for a long period of time can help you take advantage of the long-term growth potential of stocks. Historically, the stock market has produced positive returns over long periods of time, despite short-term fluctuations and periodic downturns.
If you had made an attempt to predict the market, it is probable that you will overlook certain days when the market experiences growth. While this may appear to be ordinary, neglecting the best-performing days can have a substantial impact on your overall investment amount.
To understand this better let’s illustrate this with an instance: If you had invested Rs 1 lakh in a Nifty50 index fund in May 31, 2013 and remained invested until May 31, 2023 (a span of 10 years), your investment would have approximately returned 11.8% per annum.
If you were to miss just the 40 best days during 10 years, your returns would have reduced to 8.70% p.a.
The above is based on returns of Nifty 50 TRI for the period between May 31, 2013 – May 31, 2023. CAGR (Compounded Annual Growth Rate) is considered. The top trading days are identified based on daily returns. Past performance may or may not be sustained in the future.
As you can see in the chart above, by staying invested in the market for a long period of time, you can benefit from compounding returns, which is the process of earning returns on your initial investment as well as on the returns that your investment generates over time. This can lead to significant growth in your investment portfolio over time.
Overall, while timing the market can be tempting, it is often a risky strategy. Instead, it is generally better to stay invested in the market for a long period of time and take advantage of the long-term growth potential of mutual funds and India’s economy.
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