Is It Good to Invest in ETFs When the Market is at an All-Time High?
Investing in Exchange-Traded Funds (ETFs) during a bull market, particularly when the market is at an all-time high, can be a strategic and rewarding choice. While the thought of potential market downturns might raise some concerns, the long-term benefits of ongoing investment often outweigh these fears. Here, we will explore why investing in ETFs during such periods can be beneficial and how systematic investment plans (SIPs) can help mitigate risks.
Why Invest in ETFs During a Bull Market?
The short answer is YES. Investing when the market is at an all-time high does not necessarily diminish the returns you can achieve. Let's delve into some compelling data that supports this notion.
Historical Data on NIFTY 50
Over the last 21 years, spanning 252 months, the NIFTY 50 index has experienced 55 new highs. If you had invested Rs. 10,000 in every month when the NIFTY 50 reached an all-time high, you would have invested a total of Rs. 5.5 lakh in the last 21 years.
Long-Term Growth Prospects
A calculation shows that these Rs. 5.5 lakh of investments would have grown by over three times to Rs. 17.5 lakh by December 2020. This translates to an annualized return of 10.8%, and if you factor in dividends, the annualized returns could increase to 12.3% per annum. These figures clearly demonstrate that even after investing at market highs, the returns are significant over the long term.
Long-Term Perspective Dominates
The fears associated with investing at all-time highs do not materialize in the long run. Therefore, it is crucial to maintain a consistent investment strategy. If you are invested regularly, you benefit from the market's overall upward movement and can weather short-term fluctuations with better results.
Why SIPs are Preferable
Whether the market is in a bull or bear phase, systematic investment plans (SIPs) are highly recommended. An SIP involves investing a fixed amount at regular intervals, regardless of the market conditions. This strategy helps in averaging out the investment cost and builds a robust long-term portfolio.
Inflation-Resilient Economy
The purchasing power of future generations will always appreciate due to rising standards of living. Consequently, the stock market will continuously reach new highs. If you have a long-term perspective, you should not be concerned about potential dips in the market.
Regular Diversification
For long-term investment, it is beneficial to invest in ETFs irregularly but persistently. For example, you could invest in smaller installments every few months or adopt a systematic investment plan. This approach helps in building a diversified portfolio and taking advantage of compounding over time.
Conclusion
Investing in ETFs during market highs is a rational decision if you are a long-term investor. The data and historical trends support this view, and the use of SIPs can further enhance your returns by smoothing out the investment process and taking advantage of the power of compounding. If you want to learn more about personal finance, consider following us on ecosystems like ET Money. Your insights and shares can help us reach a broader audience.