How Markets Have Grown Over 50 Years
Over the last 50 years, the S&P 500 has demonstrated remarkable growth (see image below). If someone had only followed U.S. inflation rates, their capital would have increased sixfold. By relying solely on S&P 500 dividends, that amount would have grown twenty-one times. However, when considering total S&P 500 returns which includes both price growth and dividends, the capital has expanded an impressive 255 times. This highlights the importance of staying invested in the markets for the long term, as it can significantly enhance capital growth compared to merely depending on savings or bank deposits.
Source : Creative Planning
The Risk of Not Investing in Markets
Many individuals are concerned about market risk and choose to avoid investing altogether. However, in today’s economic environment, not investing in the markets may pose an even greater risk. With rising inflation, insufficient interest rates, and taxes on bank savings diminishing returns, it becomes increasingly difficult to outpace inflation without some level of market exposure.
Starting Small and Gradually Building Exposure
A straightforward way to begin investing in the markets is to start small. For instance, if you have ₹100 in the bank earning 6%, consider setting aside ₹10 for market investments. Even in the worst-case scenario, where the market drops by 50%, that ₹10 could decrease to ₹5. Meanwhile, the remaining ₹90 continues to grow slightly, keeping the overall value of your savings nearly unchanged. Over time, consistently investing small amounts can help alleviate the fear associated with market risk.
Why Patience Pays Off
Markets often rebound strongly after a downturn. Even following a sharp decline, returns can be quite favorable within the next two to three years. By gradually increasing exposure: investing ₹10 initially, followed by another ₹10, investors can create a buffer within their portfolios. Once an investment of ₹30 grows to ₹50, this safety cushion can make future market fluctuations feel less daunting.
Making Market Investing a Habit
Getting accustomed to market investing doesn’t happen overnight; it requires small, deliberate steps and patience. Whether through direct stock purchases, mutual funds, or other investment options, gradually building exposure can help overcome hesitation. With a solid buffer in place, navigating market ups and downs becomes easier. This steady, methodical approach can lead to long-term financial security.
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