For all investors around the globe, be it first-timers or experienced ones, two questions are sure to play on their minds: When is the right time to invest? And when should I withdraw? Common sense suggests that the best time to invest is when stock markets are depressed. But investors become so pessimistic at such times that they tend to completely refrain from investing in stocks. Conversely, when markets are high or at their peak, everyone tends to go on a selling spree, and buying during this time is considered a strict “no-no”. So when should one buy? Let’s flip the pages of history to get an answer to this.
Since its inception 40 years ago, the SENSEX has seen 24 peaks and has seen a growth of 378 times. Profits and gains aside, SENSEX has never given negative returns in over two consecutive years throughout its lifetime. In the last 28 calendar years, SENSEX has given negative returns in only 8 years. And in the last 15 years, it has not given consecutive negative returns at all.
So what does all of this mean to an investor? It turns out that the stock market is actually not as scary as it is perceived to be. The average annual potential return* of 35.46% seen over the past 25 years makes the stock market quite an attractive avenue for investment. The benefits of compounding which are not included in the above figures could also prove to be a big source of gains for an investor. Highs and lows are a part of stock market investing so instead of fretting about whether a particular time is right for investing, one should think about how long they want to keep the money in the market. Whatever the market is like when you invest, the compounding returns of a well-chosen investment will add up nicely over the long haul. So the key to making reliable profits in the stock market doesn’t lie in choosing the right time to invest. It instead pays more to select a stock carefully based on what the stock is actually worth and put your money in it for the long term.
* Annual potential return calculation is based on returns considering opening SENSEX value at the beginning of the calendar year and all time high SENSEX value in the same calendar year. The annual potential returns of 35.46% is simple average of such returns over the last 25 years.