“Successful investing takes discipline, time, and patience.”
This famous quote by Warren Buffet can be best applied when long-term investment is concerned. Waiting patiently for your investments to grow might be frustrating when you begin. However, the longer the investment tunnel, the higher corpus you are likely to accumulate.
Ideally, to meet your long-term goals of five years and above, you are recommended to invest in equity funds. This is because equity as an asset class is highly known to generate inflation and fixed income instrument beating returns over the long term by a wide margin.
However, as equity mutual funds may be volatile, many tend to avoid investing in them. Note that equity funds witness high volatility only during the short term. The only way to reduce the volatility risk and ensure safe investment in an equity fund is to stay invested for a long time period. Opting for a long time period allows your investments to recoup from any market volatility and grow over time owing to the compounding effect. Based on your long-term financial goal, you can remain invested in equity funds for 5, 7, or 10 years or more. Discussed here are the reasons to remain invested in an equity fund for a long time period –
Compounding effect
The compounding effect is an important benefit of the long-term market investment. Owing to the power of compounding, the returns you earn on your investments are reinvested along with your capital amount. This process substantially enhances the value of an investment over the long term and assists you to form a huge corpus by the end of the investment horizon. So, the longer you remain invested, you can generate higher returns through compounding in an equity fund.
Reduced risk
A long time period allows you to ride through short-term market volatility. It endows your investible funds sufficient time to generate returns and steadily grow without being impacted by short-term market fluctuations. Note that even if your investments underperform over the short term, it is likely to recoup and generate inflation-beating returns over the long term. So, staying invested for a long term gives your investible sufficient room to grow.
Inflation beating returns
Investing in an equity fund allows your capital to grow more quickly than inflation. Inflation is the rate at which goods and services become costly. If you fail to factor in inflation and avoid equity investment when designing your long-term investment goal, you may tend to lose a lot even if your overall investments yield positive returns.
Bottom line
Though equity funds come with a certain amount of risk over the short time period, they can generate better capital growth over the long time period. So, make sure to always invest in equity funds to attain your long-term goals. Doing so would allow you to generate inflation-beating returns, manage risks, and get the benefit of compounding.
Moreover, to decide the monthly investment required to attain a particular life goal through equity investments, you must take the help of an online SIP calculator. Here, in this calculator, you just need to input your corpus requirement for a particular life goal, expected annual returns and time horizon left to attain the goal. Upon inputting these values, the calculator will automatically show your monthly contribution to meet the lifegoal.
