Long Term SIPs For Better Results

Our parents managed money in such a way that it took care of the entire family and its needs. What did they do right? And where are we going wrong? This Father's Day, let's try to unravel the mystery. Maybe we would find some clues hidden behind the advice, rebukes, instructions that were a part of our growing up days. 

"Be patient and it will happen soon!" 

We want everything to happen at once - we want to qualify for the football tournament on the first day of the league matches, we want to get a senior position in our organization on the first day of our job. These desires can be rather frustrating. Dads always had the perfect cure for this - "Be patient and it will happen soon." 

The same applies for our investments. Patience is considered a trade virtue and more often than not is something that is lacking in most investors. Erratic behavior is responsible for limiting the potential of our portfolio. Wealth creation is a lifelong venture and doesn't happen in one stock market cycle. 

Equity markets have been able to create enormous wealth for the long term investor. Someone who had invested Rs 1 lakh in 1990 would be sitting pretty with a corpus of Rs 3,847,807 in May 2018 (a compounded annual growth rate of about 14 percent in 28 years). Patience does pay. 

"Control your emotions"

Another significant lesson dads have taught us is to control our emotions. Winning three matches in a row could have taken us on cloud nine, but dad said, "It’s not a big deal, keep going." And losing three matches could have pushed us into depression, but dad still said, "It’s not a big deal, keep going." 

This is something that needs to be replicated while investing. The idea is not to get swayed by the sharp corrections (up or down) in the market. Staying long in the market is the key to healthy returns. It's also important not to get anxious and take ill-advised steps when the market is sliding. 

The demonetization movement by the Indian government and the US election results in 2016 made the Nifty slip 229.45 points on November 11 to close at 8,296.30, the lowest in over four months. An individual who started a SIP of Rs 1,000 in March 2015 and continued irrespective of the momentary changes in the market, would have accumulated Rs 50,089 as of May 11, 2018 (with total invested amount of Rs 39,000), giving a yield of 16.40 percent%. The key here is to stay invested even during major events and ride out the movement in the market.

Last word

Dad's simple teachings can solve greater complexities but are often forgotten in our fast-changing lives. These childhood lessons from him may not have made much sense then, but they do now. It's worth trying what he taught for what we want. So, let's go ahead and make the most of it.