One of the fundamental financial principles we are taught early on in life is that we should save for the future. It is imperative to have a long-term financial investment plan to combat the uncertainty of life. And the work doesn’t end with planning - you also need to review this plan on a regular basis to ensure you are on track to achieve your financial goals.
The question then arises: what is the best way to fulfil the goal of wealth creation? How do we surf over the volatility of the markets? Is investing in a savings plan for longer term a sage strategy? Let’s examine these dilemmas.
The only key to beating a volatile market is staying invested in the long term
Whenever and wherever you invest, market volatility drives your worries. You can think of volatility in terms of the price swings or the magnitude of such price swings. A higher volatility means that these price changes are either frequent or they are greater in degree. It is always unnerving to think of a volatile investment because it will also contain a higher degree of risk.
But there is a catch: it is not necessarily accurate to equate short-term volatility with long-term consequences.
The logic behind the effectiveness of such a savings plan is simple: your investment might be fluctuating daily, but over the longer term, it may show patterns of growth or stability.
This is exactly why you need to stay invested in the long term to reap the benefits: time is of the essence. Let us explain this phenomenon in a little more detail: Investing in the long term helps to assuage the impact of the fluctuations in shorter periods of time. The longer you stay invested, the more likely it is that you’ll weather the low market periods and grow on to a larger return. In fact, you can use the volatility of the market to your advantage if you stay invested in the long term.
Staying invested in the market over the long term pays off
The concept that explains why this happens is the ‘compounding investments.’ It would be beneficial for you to understand how your investments function in the long term and compound the returns. The returns on your investments that you receive in the initial years, become a part of the investment and get re-invested. Thereon they start generating returns too, thereby adding to the overall returns. The result? Your total returns start piling up at a much higher pace than you envisaged. If you want to make the most of it, capitalize on the power of compounding; investments will generate higher returns after a certain period.
Don’t give in to panic: a golden rule.
Short-term fluctuations may seem disconcerting and it is human nature to panic at the sight of a falling market - but even historically, the stock market tends to reflect overall growth and productivity of the economy in the long run.
Not to mention there are other gains when you invest long-term: fewer transaction costs, tax advantages. If you need proof that this works, remember that Warren Buffet is no short-term momentum investor either, and he is one of the best ones 1.
Once you are convinced of the benefits of long-term investment, you’ll need to decide which investments you’ll put your money into. Depending upon your financial goal and expenses: saving for retirement or a college education, for a future house, or to provide funds for the long-term care of your parents, you can choose from an array of plans that will churn assured returns. Most moneyback plans provide assured money back to the policyholders and often act as savings avenues. You have plenty of savings plans to choose from and many plans come with the dual benefit of guaranteed money back at regular intervals along with protection in case of an unforeseen eventuality.
If you choose to invest for longer term, you can easily build a corpus for your financial needs at every stage of life by investing in savings insurance plans, and effectively ride over the volatility of the market.
To know more about Term Insurance, browse the website for various Term Plans offered by PNB MetLife.
1 Source: https://edition.cnn.com/2019/05/06/success/warren-buffett-long-term-investing/index.html
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision..
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