You must know why you invest your money. It makes sense to plan how long you wish to stay invested. Investment is not a one-time transaction; rather, it is a well-planned recurring process that must be maintained over time. To start with, the idea of investing money is to generate enough wealth to meet various financial goals. The corpus you are looking to accumulate can be equivalent to a crore or more depending on why you need the money and the way you perceive the health and use of your finances in the future. The goals can range from purchasing your dream home or car to funding your children's higher education and marriages, as well as travelling abroad or retiring in an exotic location.
Investments are, however, meaningless unless you assess their performance or gauge their growth in a given time frame.
The two essential traits
You must associate each financial goal with a time frame. This means that while some can be completed in the short to medium term, others must be completed over time. This means you must hold your investments accordingly to achieve your financial goals.
Avoid financial influencers who promise a magic wand to make your money grow overnight. There are no shortcuts that guarantee financial success in the shortest period of time. Investments take time to yield the desired results.
To experience financial independence through a successful investment journey, you must possess two essential traits: Discipline and patience. However, it is also true that the majority of people lack these two qualities and do not make money or make less money.
“Spending time in the market” vs “timing the market”
How many times has it been reiterated by experts like Warren Buffett that investors must focus on “spending time in the market” rather than “timing the market” to achieve financial independence?
The stock market has been falling constantly for some days owing to foreign institutional investors (FIIs) redeeming their stocks recently. Though the domestic institutional investors have managed to hold up by continuously buying stocks or holding on to their portfolios, FIIs’ selling behaviour caught many investors unaware, especially those who had bought their stocks at considerably high valuations hoping to gain from market strength.
However, the dynamic nature of markets has caused them to move unevenly. One may attribute this behaviour to the underlying securities that are subject to a continuous price discovery mechanism. As a result, market movements have turned unpredictable. There are repetitive patterns of ups and downs in the market. Quick bullish and bearish market cycles are becoming unavoidable though you cannot deny that the market would not exist without such cycles. Both traders and investors factor in short- and medium-term corrections along with volatility to buy and accumulate stocks at lower prices. Without such opportunities, both large and small wealth creation would be nearly impossible.
The market’s erratic pattern of movement makes it nearly impossible for investors to generate wealth by trying to time the market. If investors consistently succeed in timing their market entry and exit, it is most likely a coincidence. Such investors are extremely rare, if not non-existent. Those who try this strategy frequently burn their fingers, resulting in either permanent exclusion from the market or long periods of waiting on the sidelines.
Investors who did not panic in April 2020 and instead chose to stay invested while also taking advantage of subsequent market corrections to accumulate more units at bargain prices saw their wealth double or even triple later. The situation was similar to the 2008 global meltdown. Within a year of hitting bottom, markets had recovered nearly all of their losses. Following the long consolidation periods of 2000-2004 and 2009-2013, markets handsomely rewarded investors who remained invested.
The stock market teaches investors to remember that ups and downs are cyclical, but markets have a history of long-term growth. Staying in the market with a goal in mind usually results in significant wealth creation for investors.
Staying in the market regardless of market cycles is a simple but effective mantra for becoming a successful investor.
You witness and experience the magic of compounding when you focus on time in the market. Timing the market has helped none unless they have been exceptionally lucky or intuitive.