Investing in equity amidst turmoil: A lesson in patience

Have you been reading the news about the Palestine-Israel conflict? If so, you have likely come across media reports like, "Oil prices have gone up due to the Middle East devastation," "Oil price will drive up inflation in India and impact equity markets," and "Investors are looking at safer havens like gold and debt due to geopolitical tensions."

Given the humanitarian disaster unfolding in the Middle East and the economic fallout it is likely to have, most investors are wary of further investing in equity. In such scenarios, investors either stop investing in equity or think twice about further investing in them. This concern is entirely understandable, and one of our readers had a similar worry, because world events have always had the power to sway equity investments.

Just look at the last four-odd years: COVID struck, inflation followed, and banks collapsed. Put into the mix the Russia-Ukraine war. All these events either disrupted or sent shockwaves to equity markets, causing chaos and turmoil in recent years.

However, as counterintuitive as it may seem, it doesn't imply you should stop your equity investments. Let's explain why.

Keep calm and carry on

If you trace the 30-year journey of the Sensex, you can see that the country's oldest index has weathered numerous economic events (although we have focused on five of them in the chart below). In fact, the Sensex has actually grown 10.39 per cent annually between December 31, 1993 and October 30, 2023!

In practical terms, had one been a disciplined investor, your money would have doubled roughly every six years and nine months.

In essence, form is temporary, and class is permanent. While your equity investments may suffer temporary setbacks, they will eventually reassert their class and grow your money.

Furthermore, let's highlight the calmness of long-term investing and not simply succumbing to the pressures of short-term developments.

The case for SIPs

A look at SIP returns in the table below highlights the advantages of long-term, disciplined investing. Despite various crises and events, like COVID, the Ukraine conflict, or the 2008 global financial crisis, SIP investments consistently outperform lumpsum investments. This underscores the effectiveness of a patient, systematic approach to equity investing in navigating economic and geopolitical challenges over time.

This is because SIPs mean consistent investments irrespective of market conditions, ensuring more units are acquired during market lows. This strategy lowers the average purchase cost and, leading to higher returns.

Moral of the story

During challenging times, it's essential to remain patient and not make impulsive decisions. Just like bad news that initially hits us hard, we often find that, given a bit of time, we can reflect and think about it more rationally. This principle also holds when it comes to investing in equities.

While you may think that preaching patience in times of turmoil is easier said than done, this is what separates the best investors from the rest.

Also read: COVID, war and things like that

This article was originally published on October 23, 2023, and last updated on November 01, 2023.