Is Market Timing Important?
The single word answer is NO. Now let’s explain why and how?
To understand this let’s consider our dream character, Mr. Bibhuti Bose in the year 1990 was of 30 years then.
Mr. Bibhuti Bose was working in a private sector company for the last 5 years and was earning Rs. 5,000/- p.m. Considering inflation @ 8% p.a. this is equivalent to Rs. 50,000/- p.m. at current cost (2020).
On 1st April 1990, Mr. Bose was thinking to invest an amount equal to his 10 months earning, which is Rs. 50,000/- for his retirement corpus in any market-linked product (let’s assume in SENSEX). On that day SENSEX closed at 714. He was expecting a market fall of 10%, that means SENSEX around 643 is the right time to invest. His investment horizon was of 30 years.
Now, let us see what happened, in 2019 if he invested when SENSEX falls at 643, and also if he invested at prevailing SENSEX of 714. Today 1st April 2019, SENSEX is 38,673.
If Mr. Bose invested at SENSEX 643 his current Return on Investment is 14.20% p.a.,
If Mr. Bose invested at SENSEX 714 his current Return on Investment is 14.60% p.a.
The total difference in return is hardly 0.40% p.a. Definitely, there is a value of 0.40% p.a. over the period, but the problem is that we are a very poor decision-maker when it comes about investment. We became more emotional than logical here. Due to this most often we miss the rally and keep our investment in FD’s and we stick with 7%.
Conclusion:
Hence in this regard, it is always advisable, whenever you are planning to invest for long term (10+ years), don’t try to time the market. If you have such investible surplus, discuss with your Financial Advisor and park your money in the market linked product. Alternatively, if you don’t have a lump sum to invest, opt for SIP mode of Investment.
Thus, don’t be like Mr. Bibhuti Bose – don’t invest without a clear understanding of your future perspectives. You need to structurize and plan everything – from your next groceries shopping to even playing the best online slot machines for real money. Only this will help you succeed eventually.
SENSEX started his journey in 1979 at 100 and in 2019 it is around 38,673. I am very much positive, that this growth story will continue, and by putting the same growth rate projected figure of SENSEX by 2025 will be around 95,000 and by 2030 SENSEX will be 2,00,000. So, hardly it matters in the long term (10 years) perspective, whether you are investing right now or at any short-term correction in the market. the main focus should be you should remain invested.