Focus on “time in the market” rather than “timing the market”, says Morningstar research report
Attempting to pinpoint the optimal moments for buying or liquidating a fund is probably a fruitless endeavour, according to a recent research report by Morningstar. Even funds that surpass the benchmark typically tend to closely follow or lag behind it for the most part. The stock market’s superior performance compared to cash in the long run can be attributed to only a handful of pivotal months. Several factors contribute to this:
Unpredictable nature of stock market: Even the most skilled experts struggle to reliably forecast market fluctuations.
Short-term underperformance: Even proficiently managed funds may experience periods of subpar performance over the short term.
Effect of transaction costs: Expenses associated with buying and selling funds can erode your overall returns.
What really matters is “time in the market" rather than “timing the market". Rather than attempting to predict market timing, it’s wiser to concentrate on long-term investment strategies. This entails investing in a diversified portfolio of funds and retaining them for the long haul, regardless of short-term market fluctuations.
The authors of the research, Kaustubh Belapurkar, CFA and Director and Melvyn Santarita Analyst — Manager Research, Morningstar said, “Over the long haul, the stock market’s outperformance over cash boils down to just a few critical months. Miss those months and you will have missed all the risk premium to be earned from holding a volatile asset such as equities."
The report emphasizes that Indian stocks’ superior performance over cash from October 2013 to September 2023 can be attributed to only 12 specific months (10 per cent of the months in the sample). This implies that if you held stocks for 108 out of those 120
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