SIP (Systematic Investment Plan) cannot make you rich. Theoretically it can. But real life and the emotions that come with it are far different from excel sheet projections which “investment advisors” give.
Let us take an example.
- You started a SIP in January 2010 when the Nifty 50 index was around 5000.
- You were consistent with your SIP every single month.
- You did the ‘step up’ as advised, increasing your SIP investment by 10% every year.
- 10 years later, in January 2020, you are happy. Nifty 50 is now at 12,000, returns of around 9.5%.
Your investment has yielded decent returns.
Then comes COVID. Market crashes.
Within months, all the gains you made over an entire decade is vanishing right in front of your eyes.
When Nifty hit a bottom of around 7500, those who did SIP investments for over 10 years were barely in positive – returns of 3-5%, worse than FD.
Those who started their SIP 5-8 years ago were in negative.
Imagine the shock, the despair, the sheer helplessness of an investor during that period.
Switch on the TV and the same “investment advisers” who were bullish on the “India story” barely a week ago, will be giving targets of 6000 and 4500 for Nifty.
Blood on the street. Fear in the minds of investors.
“Should I hit the sell button and save whatever that is left?”
Tremendous amount of sacrifice has gone into saving money over an entire decade. It could be the money you saved without buy a toy for your child when he was 5 years old. It could be a family vacation you did not take with a young family.
All saved up for child’s education or wedding? But where is the money now?
The market does not care about your emotions. It is steady on the way up but brutal on the way down.
During these times of extreme fear, there are many who sell and there are many who sold.
When they look back, Nifty at 7500 was the biggest opportunity of their lives to invest more. As the market continues to go up, they will always be left waiting for a correction – a correction that has never come in the last 4 years after the crash.
Those who did not sell at the bottom of the crash – sold when the Nifty regained its previous highs of 12000.
“Surely the market cannot go higher when the businesses are still under lock downs”
The market doubled from there.
Investing in the stock market is tough. Just doing a SIP every month – without understanding the nuances of the market, without learning its cycles, without experiencing its ups and downs – is pretty much useless.
You will sell when it is time to buy and buy when the time is ripe to sell.
Peter Lynch is one of the most successful fund managers in the world. His ‘Fidelity Magellan Fund’ from 1977 to 1990 compounded at an annual rate of over 29%.
Yet, according to Fidelity Investments, the average investor in the fund lost money during Peter Lynch’s tenure.
His investors bought when the market sentiments were positive, and sold when the tide turned. Very few stayed invested for more than 3 years.
Warren Buffett famously said “Be fearful when others are greedy and be greedy when others are fearful”
He was asking you to time the market – something which investment advisors say you absolutely cannot do.
You CAN time the market, and you absolutely should.
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