Importance of staying invested during all market cycles: here’s what an expert says

Market cycles that are marked by fluctuating prices and are deeply influenced by event such as economic trends, pandemics, elections, geo-political situation also result in change in valuation of an asset over a period i.e it may move from ‘fair’ to ‘undervalue’ to ‘overvalued’. So, here is an expert take on why one should remain invested during all market cycles.

In the words of  Misbah Baxamusa, CEO, NJ Wealth- one of India's largest mutual fund distributors, in the last 20 years, the mutual fund industry has experienced tremendous growth, with the industry AUM rising from Rs 1.54 lakh crore in April 2004 to Rs 57.01 lakh crore in April 2024 (Source - AMFI). While the industry is growing at a scorching pace, it is still at a nascent stage and has a high growth trajectory. 

The markets have given compounded returns in double digits, but not all investors have been fortunate enough to achieve these returns. A major reason for this is investors' behavioural biases, he noted.

The expert held that building wealth in the long term and staying invested is directly proportional. The longer you stay invested, the more wealth you can build. Giving time to the market is much more important than timing the market. Equity markets are volatile in the short-term, but in the long-term they provide an opportunity for growth. If you increase your investment holding period, you can significantly reduce the probability of losses. If your holding period is 6 months, the probability of losses is 32.75%; however, if it is over 15 years, the probability is 0%

Baxamusa added that since April 1979, markets have gone through various bull and bear cycles, including the Harshad Mehta Scam, Dotcom Bubble Burst, Global Financial Crisis, Global Weakness, and COVID-19 crisis. However, despite all the falls, if investors had remained invested with patience, they would have grown their wealth by more than 500 times.

Being fearful and redeeming due to short-term market noise not only increases your chances for losses but can also lead you to missed opportunities, said the expert. More than 10,000 trading days have occurred since April 1979. However, the best 100 days have yielded almost 100% of the market’s returns. If you had not stayed invested during these 100 days, your return would have been 0.85%. It is nearly impossible to predict such days in advance and time the markets.

So concluding, the expert says that staying invested throughout all market cycles is the key to fulfilling financial needs and building wealth in the long-term. By staying invested through all market cycles, you can harness the power of compounding and this can help you beat your behavioural biases, stay invested, and build a prosperous future.