Everyday share market creates opportunities to grow wealth in one or the other way. Driven by demand and supply, the share prices keep fluctuating every second. Several macroeconomic variables, news flows and corporate activities nudge the market dynamics leading to volatility. Stock markets are relatively more volatile in shorter time frames.
Therefore, most market experts advise holding stock investments for the long term. A long-term investment strategy entails holding financial assets for many years, whether it’s bonds, stocks, mutual funds, or other assets. It requires patience and discipline. Investors have historically earned decent returns in the long haul. Demat Account is essential to start investing in share market.
Can Stock Market Falls Help Long-Term Investors?
Many studies and research have proven that long-term investors tend to ride out the market without worrying about short-term and occasional blips.
If you hold your investment in stocks for a long period, the occasional short-term fluctuations will not affect your long-term returns, as market graphs usually rise over the long term. Long-term investors need not worry about short-term fluctuations. Even if the market declines, they need to focus on long-term returns, as historically, markets have bounced back after every fall.
If your time horizon allows, you should remain invested despite market falls. There will likely be a short-term negative impact on your portfolio value, but that should not deter you to close the positions.
How Long-term Investors can Take Advantage of Market Falls
The first and foremost thing for a long-term investor is to abstain from making any move during a market fall or crash, as it will not impact their long-term returns. In the subsequent days, the market will be in exuberance again, similar to the waves that continue to flow in both directions. Therefore, it is best to avoid taking any drastic step.
Secondly, it should be considered an opportunity to buy more stocks from a long-term perspective. Simply because the stock market falls means all the prices are down. You can invest in a few fundamentally strong companies that you considered earlier. It is a suitable opportunity to buy low and sell high.
Thus, during the stock market downturns, you can buy more and book profits when the market rises. Make sure that your investment is well-researched. Select companies that have the potential to recover with the market.
Benefits of Long-Term Investments
- Protection From Inflation
Long-term investments can help beat inflation. Stocks are known for the potential to give higher returns in the long run. Historical data makes it evident that long-term investment in the equity market can provide higher returns than the inflation rate.
- Periodic Returns
Long-term investing does not only offer you the opportunity for capital growth over time, but this approach allows you to earn periodic dividends also. Fundamentally strong companies that also pay dividends regularly are the target of long-term investors.
- Compounding
One of the primary benefits of long-term investing is compounding over returns. Compounding gives a multiplier effect to returns, thus helping in wealth creation to meet long-term financial goals. Most investors prefer long-term investments to build wealth and build a significant corpus to fund their retirement, children’s education, or other financial goals.
- A Way to Deal with Risks and Volatility
The short-term returns from Direct equity investments and equity mutual funds are impacted due to the volatility in the market. You can manage such volatility and associated risks through a diversified long-term portfolio. Long-term investments help to deal with such short-term volatilities.
Long-term Investment Options
Several long-term investment avenues are market-linked. Therefore, the return on such investments depends on the market performance. Here are a few investment choices for long-term investments.
- Direct Equity Investments: Shares of listed companies can be bought and held in the Demat account for a long term. Open Demat account online and enter the share market and trade in multiple stocks. Several research reports and tools are available that help filter fundamentally strong companies. These companies are expected to grow, propelling their share prices in the future. Many of these companies also give dividends that can be an additional earning.
- Equity Mutual Funds: These funds invest your money into stocks. Considering the risk-reward ratio, these funds are potent enough to provide higher returns to investors. You can invest in equity mutual funds based on the market capitalization of the companies and the risk associated with them.
- Debt Mutual Funds: Debt mutual funds or fixed-income funds invest the pooled money in the fixed-income instrument, like Government bonds, treasury bills, etc. Debt mutual funds possess lower risk as compared to equity mutual funds. Some funds are monthly income plans, liquid funds, and fixed maturity plans (FMPs) under this category.
Thus, stock market falls may dishearten most investors. But it can benefit long-term investors by making prudent decisions and having patience. It can be a real opportunity as you can buy more quality stocks and benefit when the market rises soon.
Investment in the securities market is subject to market risk, read all related documents carefully before investing.
