Why is it important to be patient while investing?
Whenever we learn a new sport, game, or skill, we invest our time consistently with patience to achieve our objectives.
Success in any area requires persistence and a long-term mindset.
Similarly, investing in mutual funds demands the same. These qualities are essential to achieve financial needs in the long term.
As Warren Buffett wisely said, "The stock market is a device to transfer money from the impatient to the patient."
This quote emphasises the importance of patience in investing. The stock market favours those who stay calm and focused, even during ups and downs. Impatient investors often make emotional decisions, like selling in fear or chasing quick gains, which can hurt their overall investment strategy. In contrast, patient investors stick to their plan, think long-term, and let their investments grow steadily. This approach helps them benefit from compounding and market growth, proving that staying consistent and calm is key to financial success.
4 Reasons why patience is important while investing?
Patience and staying invested may seem boring, but successful investors understand its importance. Nurturing investments with care, prudence, and perseverance is key to long-term financial success - whether you are preparing for retirement, buying a home, or securing your child's education. Let’s delve into why patience is essential for long-term investing in mutual funds and how it leads to financial growth.
-
Wealth Building
One of the golden rules of investing in mutual funds is that the longer you stay invested, the greater your potential returns. Mutual funds thrive on the power of compounding, which amplifies your wealth over time. Just like fine wine, investments in mutual funds mature beautifully with patience, rewarding those who give them the time to grow and flourish.
Let’s understand this through the graph, which highlights market performance since April 3, 1979. The market has endured significant events like the Harshad Mehta scam, the dotcom bubble burst, the global financial crisis, economic weaknesses, and the COVID-19 pandemic. Despite these fluctuations, the market has consistently grown over time. This demonstrates that staying invested through highs and lows ultimately leads to better returns, proving the power of long-term investing.
Source: BSE, RBI. Data for the period should be from 3rd April 1979 to 30th November 2024. Sensex growth is represented by the returns of the Sensex Price Return Index (PRI). Average of 1 to 3 Year Fixed Deposit (FD) Rates published by RBI have been used to calculate the FD returns. The FD rates relate to that of the 5 major public sector banks up to 2003-04, post which they represent the deposit rate of the 5 major banks. The drawdown of market crashes are calculated from the 52-week high to the date of the bottom of the respective market crashes.
Disclaimer: Past performance may or may not be sustained in future and is not an indication of future return.
-
Mitigating market volatility
Market volatility can make it challenging to remain patient and calm, as it’s natural to feel anxious during market ups and downs. Understanding that market ups and downs are normal and learning about financial markets can help you stay calm. With this approach, you can avoid impulsive decisions that might lead to big losses. Having a solid financial strategy and focusing on your long-term objectives will provide clarity, reduce anxiety, and keep you on track toward achieving financial success.
This bar graph illustrates a key insight: the longer you invest in equity, the lower the risk you face. As shown, after 15 years, the risk significantly diminishes, nearly reaching zero. This clearly demonstrates that patience and long-term investing play a crucial role in mitigating the impact of market volatility, making it easier for investors to achieve stable and rewarding outcomes.
Source: BSE. Data for the period 3rd April 1979 to 30th November 2024. The probability of Loss (%) represents the % of negative return observations from the total daily rolling return observations for the respective holding periods.
Disclaimer: Past performance may or may not be sustained in future and is not an indication of future return.
-
Small Start
The phrase "Many a little makes a mickle" perfectly captures the essence of mutual fund investing. Even starting with a small amount can lead to a substantial corpus over time, provided you invest consistently and with patience.
For instance, if a person had started investing ₹5,000 monthly in mutual funds 30 years ago, his disciplined approach and the power of compounding would have helped him build an impressive corpus of ₹1.74 crore as of today. This example highlights how small, consistent investments can create significant wealth in the long run.
*Assuming investment in Equity Fund and an average return of 12.62% p.a. as per AMFI Best Practices Guidelines Circular No.135/BP/109-A/2023-24 dated September 10, 2024. Past performance may or may not be sustained in future and is not a guarantee of any future returns.
-
Avoiding risk related to market timing
In today’s fast-paced world, the desire for instant gratification often makes patience seem outdated. Many people, driven by greed, get caught up in trading, hoping for quick returns, but end up facing significant losses. According to a study conducted by SEBI, 7 out of 10 individual intraday traders—71%—incurred losses in FY23. To avoid such risks and build wealth steadily, investing in mutual funds is a more prudent approach.
Conclusion
The mantra of being a successful investor in mutual funds is being patient. Patience is the key that unlocks the power of compound interest, helps navigate market volatility, fosters disciplined investing, and ensures the setting of realistic expectations. By embracing these principles, you position yourself for sustained financial growth and long-term success. The journey to financial prosperity is not a race but a steady course—one where patience is your most valuable ally. Embrace it and allow it to transform your investment strategy into a lasting pathway to success.
"Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing."