Finance

How Protecting Your Investment in Stock Market is Important

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Stock traders deal in short and long term investments using their online demat account to benefit from buy and hold strategy.

It’s important that you understand the impact that a bear market has on your capital. The give and take of your investment capital is not equal. If you placed ₹10,000 into an investment and it declined 50% to ₹5,000, what is the rate of return you would need to earn back your original investment of ₹10,000?

Once you lose money, it takes a much greater return on the funds you have left to recover your original investment. In this case, you would need a 100% gain on the remaining ₹5,000 to regain your original ₹10,000 investment.

Looking at historical bear markets in the India, we can conclude that the time to recovery from a bear market can take between six months and fifteen years!  Declines in portfolio value have ranged from 20% to 40% due to covid 19!  Not a good scenario for buy and hold investors. This is why you would be better off financially to never lose money in any one year and to only achieve half of the market’s returns in the positive years.

The main advantage to buy and hold stocks in your best trading account, over the long-term tenure, is not to just secure your investment but also have a healthy portfolio for a declared period of time. It is observed that long-term investments almost always outperform the market when investors try and time their investments.

The simple strategy here is that you don’t need to equal or outperform the performance of the market in the positive market years if you protect your capital in the down market years. Protecting your capital in the down market years has an exponential effect on growing your capital over time.

The objective of any stock market timing strategy should be to reduce risk and maximise returns – with risk reduction being the most important factor. All other things being equal, you want to invest in the least volatile, highest reward, lowest risk strategy possible.

You may be reading this today in global intense pandemic situation because you are tired of giving all of your own assets, or your client’s assets, away to a bear market. You may even be in the position where your retirement has been diminished to the point of having to change your retirement plans.

Whatever the reason, buy and hold strategy is still one of the better ways to grow and protect your assets and investments.

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