Why is it Important to Be Patient While Investing?

Warren Buffett says, “The stock market is a device to transfer money from the impatient to the patient.”

The importance of patience is understated in the ecosystem of investments. Investments are not just a test of your financial acumen but also of your temperament, and patience lies at the core of this success. The investment landscape in India is witnessing an upward trend, contributing a 30.5% chunk to the Nominal GDP of the country. However, new investors still tend to think that investment is all about timing the market, entering during the lows and exiting during the highs.

Investment is more about patience and staying invested for the long haul (which also helps you Navigate Market Volatility Effectively). Let’s explore the factors that make patience the most important part of any investment strategy.

Patience and Long-Term Thinking for Profitable Investments

The temporary rises in the market give you plenty of opportunities to liquidate your investments. However, it is the virtue of patience that really fetches you unmatched value in the long term. Here are eight key factors that make patience the name of the game:

1. The Power of Compounding

• Compounding is the process of reinvesting the returns gained on your current investments into the market. This increases your principal for the next cycle, generating even greater returns. The process is repeated until you liquidate your assets or until the term's end.

• Compounding allows your wealth to grow exponentially in later years-the longer your money stays invested, the more likely it is to grow.

• For example, say you invest ₹2,000 every month in an equity mutual fund. The fund returns 10% annually. Over 30 years, you contribute about ₹7,20,000, and the power of compounding increases it to ₹45,90,000!

• This example demonstrates the benefits of staying invested for the long haul-a nominal return rate of 10% annually has the power to deliver ₹38,70,000 in gains over three decades.
  

2. Market Volatility is Normal

The market is a dynamic entity and undergoes upturns, downturns, and corrections.

• Upturns signify sustained growth.

• Downturns are a result of economic uncertainties.

• Shocks and corrections are short-term declines arising due to overvaluation or negative sentiment.

Don’t let daily market fluctuations influence your long-term investment strategy. These fluctuations disturb your investment strategy and take away the chance of long-term gains.

Over time, the market dips get neutralized, giving you more consistent results in the long term rather than timing the market for short-term gains.

Emotional selling or buying during bullish or bearish market trends often locks your losses in and prevents you from benefiting from market recovery.

3. Long-Term Goals vs. Short-Term Gains

Long-term investment focus helps you stay on track for your future financial goals. Your decisions remain immune from market fluctuations and fleeting trends.

Make sure your investments consider the bigger picture and account for the meaningful milestones such as retirement, education, home purchase, etc., because these require significant capital growth over time.

Only by staying consistently invested can you achieve stability and prioritize profitability from investments. Allow your principal to compound over time to accumulate wealth without exposing your portfolio to unnecessary risk.

Furthermore, long-term investment nullifies market turbulence, reducing the impact of dips on your investments. Consider a patient investor and an impulsive investor:

Investor	Patient	Impulsive
Stays invested for	20 years	3 years
Monthly contribution	₹5,000	₹5,000
Return rate	10%	10%
Total invested	₹12,00,000	₹1,80,000
Future value	₹38,29,500	₹2,00,322
Loss in potential growth	Retains full compounding benefit over 20 years	Loses ₹36,29,178 in compounding benefits

Quick tip: If you are already invested, check how much money you would earn with this handy AssetPlus tool.

4. The Risks of Emotional Investing

Impatience gives birth to negative emotions like fear, panic, and greed. These emotions can significantly impact your investment strategies.

You could end up selling your assets prematurely because of fear and panic during market downturns. This can lead to potential losses in the long term. On the other hand, the temptation for high returns during rallies can lead to exposure to high-risk assets.

Impulsive reactions to market fluctuation lead to poor investment outcomes. If you sell during downturns, you cannot participate in future recoveries. Chasing quick profits can lead to high-risk exposure, while frequent trading erodes returns through transaction costs and taxation.

Staying invested for the long term ensures that your wealth grows steadily despite market trends.

5. The Impact of Time on Risk and Return

Time dilutes the impact of market fluctuations on your portfolio. While the ups and downs may seem concerning in the short term, the market generally retains an overall upward trajectory, giving your investments a chance to recover and grow again.

Younger investors benefit from time and longer horizons before they withdraw the funds. This gives them a chance to tolerate a few high-risk assets through portfolio diversification:

• Stocks: Equity markets like Nifty 50 deliver higher returns over decades (approx. 12%-15% annually), which outpace inflation.

• MFs: Equity mutual funds that track broad market indices respond well to sustained market growth and outperform FDs and other Savings Schemes.

• Real estate: Property investments yield capital gains and rental income over the long term.
  

6. The Role of Rupee-Cost Averaging

Rupee-cost averaging (RCA) involves investing a fixed amount regularly, regardless of market conditions, helping you average out your cost per unit over time.

During downturns, this sum buys more units at lower prices. During upturns, it buys fewer units at higher prices. Over time, this trend averages out the cost per unit, nullifying market volatility.

RCA empowers investors to keep investing regardless of short-term market movements. They steadily accumulate more units to extract maximum growth potential over the long term.

Timing the market without experience is risky and rarely successful. RCA helps you avoid this temptation and focus on creating a better life rather than tracking the market.

7. Avoiding the Pitfalls of Market Timing

Market timing is highly risky and rarely delivers consistent returns. It is nearly impossible to predict the market's rises and falls correctly, making it difficult to buy and sell at the most opportune time.

Thus, investors often sell during lows (incurring losses) and buy during highs (driven by the fear of missing out).

It is crucial to understand that investment is not a game of time-sensitive decision-making but careful strategizing and goal-setting. Long-term investment offers the benefit of steady growth, regardless of missing out on the best market days every now and then.

8. Patience Helps You Stay Invested

A successful investment journey has a well-defined plan for your goals, risk tolerance, and financial situation. It keeps you going on your planned roadmap, helping you stick to your investment plan for the long haul.

If the market takes an unpredictable turn, it is natural to experience strong emotions for your hard-earned money. Instead of reacting emotionally, consult your financial advisor and respond with a calm, informed plan. They will guide you through rebalancing your portfolio to trim overperforming assets and top-up the underperforming ones to maintain balance.

Success Stories of Patient Investors 

Warren Buffett, the most legendary investor of all time, embraced patience as the key virtue for dabbling in investments. His focus is on buying into high-quality companies and staying invested with them for the long term.

For example, he purchased Coca-Cola shares in 1988 that he still holds today. His patient investing strategies have helped Berkshire Hathaway (Buffett’s holding company) become a global powerhouse with a fortune exceeding $100 billion.

Staying invested even in the face of a crisis helps you recover from market crashes over time. For example, people who stayed invested in mutual funds even during the COVID-19 pandemic experienced fund growth when the markets began to recover a year later. Those who exited their investments faced losses on the long-term gains that came later.

Conclusion

In investments, patience is the name of the game. You need to select your funds carefully by focusing on high-quality companies and set an SIP to ensure disciplined investing. Once your automated SIP starts, you must forget about the arrangement until it is time to rebalance.

Rebalancing your SIPs helps you realign your portfolio with changed goals or market patterns. This ensures that your wealth keeps growing steadily while neutralizing market volatility.

Embrace a patient, disciplined approach to investment that helps you create a reliable corpus over time to retire on. Start your SIPs today with AssetPlus. Sign up today to get started!

Remember: "The best time to plant a tree was 20 years ago. The second-best time is today."