Nifty 500 has been reaching new highs of 22,305.10 and even at the time of writing this article, Nifty 500 is trading at 22,253.25. When markets are hitting fresh highs, a lot of investors face “psychological barriers to entry.”
Those who remained invested during the tough times are rejoicing at the current market levels. However, those who were out of the market might have 2 thoughts: “We missed the opportunity to invest at lower levels” and “It is risky to invest at current levels.”
Usually, such questions bother people who try to time the market. Such Investors try to avoid market highs and buy when the market hits lows. However, it is impossible to accurately time the market.
Hence, it is always prudent to have a well-balanced portfolio to avoid being out of the market when the market is rewarding. To understand how investing even at an all-time high is rewarding, we carried out a study.
The Study
In this study, we took the closing price data of Nifty 500 from 1st January 1995 to 20th June 2024. We then further analysed the data by calculating 1-year, 3-year, 5-year, 7-year, 10-year, and 15-year rolling returns.
To those who don’t know what are rolling returns, it is a method of continuously calculating returns of a selected period of study. For example, our period of study is 1995 to 2024 and we want 5-year rolling returns.
So, we calculate a 5-year compounded annual growth rate (CAGR) each day from 1995 up to 2024. This means we will calculate CAGR from 1st January 1995 to 31st December 1999, then 2nd January 1995 to 1st January 2000, and so on until 20th June 2024.
Rolling returns shows what the 5-year returns would be if you had invested on any day during the study period. The below table shows the median rolling returns of Nifty 500 over the study period.
|
Median Rolling Returns
|
1-Year
|
3-Year
|
5-Year
|
7-Year
|
10-Year
|
15-Year
|
|
10.2%
|
11.2%
|
11.3%
|
12.1%
|
13.7%
|
13.1%
|
|
Rolling Returns Period
|
<0%
|
0%-10%
|
10%-20%
|
20%-30%
|
>30%
|
|
1-Year
|
30.3%
|
19.3%
|
16.3%
|
10.1%
|
23.9%
|
|
3-Year
|
15.4%
|
28.2%
|
32.8%
|
11.4%
|
12.2%
|
|
5-Year
|
4.0%
|
39.0%
|
43.4%
|
4.8%
|
8.7%
|
|
7-Year
|
3.3%
|
27.3%
|
54.3%
|
14.9%
|
0.3%
|
|
10-Year
|
0.0%
|
21.5%
|
72.3%
|
6.2%
|
0.0%
|
|
15-Year
|
0.0%
|
8.9%
|
91.1%
|
0.0%
|
0.0%
|
Price Data Source: NSE
The above table clearly shows that, if you had invested for 10 or 15 years on any day from 1st January 1995 to 20th June 2024, you had never yielded negative returns. In fact, on an average of 72.3% (10-year) and 91.1% (15-year) of the times, you would have yielded returns between 10-20%.
With this, you can see the significance of long-term investing at any point in time in the market. However, a few folks might have a burning question about beating inflation. Before we move on to it, let’s check what inflation rate we can assume.
If we look at the consumer price index (CPI) then the median annual CPI change from 2013 to 2024 (YTD) is 5.3% This means that we can safely assume 7% (with margin) as our inflation rate.
|
Rolling Returns Period
|
% of Times Returns were Greater than 7%
|
|
1-Year
|
56.3%
|
|
3-Year
|
67.2%
|
|
5-Year
|
72.5%
|
|
7-Year
|
85.3%
|
|
10-Year
|
95.8%
|
|
15-Year
|
100.0%
|
Price Data Source: NSE
From the above table, we can comfortably say that if you invest in the market for a minimum of 7 years, there is an over 85% chance of you beating the inflation. So, if you are investing for a long time in the market, then there are higher chances of you beating the inflation.
Final Thoughts
A lot of investors at the current juncture might be confused about whether or not to be in the market. Our study suggests that you should invest in the market with a long-term view. The analysis of the historical data indicates that if you invest for 10 years or above then there are 0% chance of you earning negative returns. Moreover, by remaining in the market for the long-term investors are likely to earn returns between 10-20%. Hence, it is quite clear that whether the market is at an all-time high or undergoing correction, you can invest in the market with a long-term view of at least 10 years.