Long-Term is How Long?

Most of the time, our professional investor, investment advisers and even our product distributors were arguing about long-term investment in equity. Thus, any particular definition exist long-term is how long?

Before searching for long-term is how long, better to consider why long-term?

We considered long-term, because equity is more predictable in long-term. We solely believe in India growth story. When we predicting equity’s long-term return, this was come with a number! Who were attracted with this number, they were invest and who were not attracted going forward.

Thus, most of the investor not attracted towards these numbers!

Yeh off courses, who were suggesting this number or what return, generated by equity as an asset class in last decades. They basically want to save themselves! Because till date there is no standard definition of term long-term!

Thus, different people have different perspective on long-term investing.

Our suggesting person of long-term knows that, equity is a volatile asset and its measure by standard deviation. But they may be not familiar with the term standard deviation!

As we earlier mention that, there is no standard definition of long-term. But standard deviation is impacted differently time to time. Like, if upside deviation impacted then your return plus upside deviation. We quite happy with this number, but if downside deviations impacted then, return minus downside deviation.

So from above analysis we comes to know that, equity is a volatile asset and once your return is generated simply exit or book loss anytime after your term or satisfy with low return with as usual long-term investment and there is no standard time frame of long-term truly.

Till date our majority of investor never except the term long-term in his/her investment practices truly. Apart from equity rest will taken as long-term! How poor we are?

So what’s solution? Or what we are missing in generating satisfactory return?

No one will make money by taking risk, but we could by managing risk.

Recently few months back there was article came in a pink news paper, which shows that, last 10 years an equity fund return was 20% and investor return was 14%. Don’t bother about this article it’s just a sales pitch nothing else!

If we were considering the 20% return of a fund, but what level of risk (volatility), if we assume it will be 15% around than what’s your return range 35 to 5%. If in the time of exit if we get 5% than, a simple question is comes here is that, where 7% is risk-free rate of return and we get 5%, is it a good investment? Simply not and if we get 14% return instead of 20% of fund return and higher than risk-free return than what’s the problem?

So time of investing must consider, risk & return calculation.

If you need 15% returns with risk of 10% than, you can’t satisfy with 5% return. So we need to allocate some money towards another asset class, which is less volatile to equity and time to time re-balancing provide consistent performance. Now risk is lower and returns are consistent truly!

Most of the time, we depending on past performance, which is convinced that, equity is a long-term asset in our portfolio, but we couldn’t thought worst about it or if our expected return not comes as we think than, what’s plan-B.

 Swayam Bichar Kijiye!

For any query or feedback please let us know below or mail us at: prabirsharma@gmail.com