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Imagine you’re meticulously crafting a sandcastle on the beach.
You’ve spent hours perfecting every detail, only to have a sudden wave wash it away.
Do you abandon your efforts, or do you rebuild it farther from the tide’s reach?
Investing in the stock market often feels similar.
The market’s waves are inevitable, but understanding them can help us construct a more resilient investment strategy.
Table of Contents:
1. The Emotional Roller Coaster of Investing
2. Understanding Rolling Returns
3. The Significance of Rolling Returns in Investment
4. The Power of Rolling Returns in Long-Term Investing
5. Analyzing Sensex Rolling Returns (1979–2024)
6. Lessons Learned from Rolling Returns
1.The Emotional Roller Coaster of Investing
It’s common to hear about investors pulling out their funds during market downturns.
Panic sets in, leading to thoughts like, “I must salvage what’s left!”
This reaction, though natural, is often fear-driven rather than logical.
Just as avoiding the ocean’s waves out of fear means missing out on its beauty, selling investments during a market crash can mean forfeiting future growth.
But why do we panic? Could it be because we focus too much on daily market movements?
2.Understanding Rolling Returns
When watching a movie, would you judge its merit based on a single scene?
Similarly, evaluating an investment based solely on its performance over a short period provides an incomplete picture.
Rolling returns offer a panoramic view by assessing investment performance over overlapping periods.
For instance, examining 3-year returns not just from a single start date but from multiple consecutive start dates within the dataset.
This approach smooths out anomalies, offering a clearer perspective on consistent performance trends.
3.The Significance of Rolling Returns in Investment
Why do investors often panic during market downturns?
It’s human nature to react to immediate events, especially when faced with potential losses.
However, this short-term focus can be misleading.
Rolling returns shift our gaze from daily market noise to long-term trends, highlighting the benefits of sustained investment horizons.
They underscore the importance of patience, revealing that while short-term returns can be erratic, long-term investments often yield more stable and favourable outcomes.
4.The Power of Rolling Returns in Long-Term Investing
How do rolling returns benefit investors?
They shed light on the potential obstacles in our investment journey.
The stock market is rife with short-term fluctuations—stellar one year, disappointing the next.
However, by analyzing performance over extended periods, such as 5 or 10 years, we can discern a more consistent and sustained growth pattern.
5.Analyzing Sensex Rolling Returns (1979–2024)
To comprehend the practical application of rolling returns, let’s delve into the historical performance of the BSE Sensex from 1979 to 2024.
The table below illustrates the annual closing values and year-on-year percentage changes:
|
Year
|
Sensex Overview
|
Rolling Returns | |||||
| 1st Year | 3rd Year | 5th Year | 10th Year | 15th Year | 20th Year | ||
| March 1979 | 100 | ||||||
| March 1980 | 129 | 29% | |||||
| March 1981 | 173 | 35% | |||||
| March 1982 | 218 | 26% | 30% | ||||
| March 1983 | 212 | -3% | 18% | ||||
| March 1984 | 245 | 16% | 12% | 20% | |||
| March 1985 | 354 | 44% | 18% | 22% | |||
| March 1986 | 574 | 62% | 39% | 27% | |||
| March 1987 | 510 | -11% | 28% | 19% | |||
| March 1988 | 398 | -22% | 4% | 13% | |||
| March 1989 | 714 | 79% | 8% | 24% | 22% | ||
| March 1990 | 781 | 9% | 15% | 17% | 20% | ||
| March 1991 | 1168 | 50% | 43% | 15% | 21% | ||
| March 1992 | 4285 | 267% | 82% | 53% | 35% | ||
| March 1993 | 2281 | -47% | 43% | 42% | 27% | ||
| March 1994 | 3779 | 66% | 48% | 40% | 31% | 27% | |
| March 1995 | 3261 | -14% | -9% | 33% | 25% | 24% | |
| March 1996 | 3367 | 3% | 14% | 24% | 19% | 22% | |
| March 1997 | 3361 | 0% | -4% | -5% | 21% | 20% | |
| March 1998 | 3893 | 16% | 6% | 11% | 26% | 21% | |
| March 1999 | 3740 | -4% | 4% | 0% | 18% | 20% | 20% |
| March 2000 | 5001 | 34% | 14% | 9% | 20% | 19% | 20% |
| March 2001 | 3604 | -28% | -3% | 1% | 12% | 13% | 16% |
| March 2002 | 3469 | -4% | -2% | 1% | -2% | 14% | 15% |
| March 2003 | 3049 | -12% | -15% | -5% | 3% | 15% | 14% |
| March 2004 | 5591 | 83% | 16% | 8% | 4% | 15% | 17% |
| March 2005 | 6493 | 16% | 23% | 5% | 7% | 15% | 16% |
| March 2006 | 11280 | 74% | 55% | 26% | 13% | 16% | 16% |
| March 2007 | 13072 | 16% | 33% | 30% | 15% | 8% | 18% |
| March 2008 | 15644 | 20% | -34% | 39% | 15% | 14% | 20% |
| March 2009 | 9709 | -38% | -5% | 12% | 10% | 6% | 14% |
| March 2010 | 17528 | 81% | 10% | 22% | 13% | 12% | 17% |
| March 2011 | 19445 | 11% | 8% | 12% | 18% | 12% | 15% |
| March 2012 | 17404 | -10% | 21% | 6% | 18% | 12% | 7% |
| March 2013 | 18836 | 8% | 2% | 4% | 20% | 11% | 11% |
| March 2014 | 22386 | 19% | 5% | 18% | 15% | 13% | 9% |
| March 2015 | 27957 | 25% | 17% | 10% | 16% | 12% | 11% |
| March 2016 | 25342 | -9% | 10% | 5% | 8% | 14% | 11% |
| March 2017 | 29621 | 17% | 10% | 11% | 9% | 15% | 11% |
| March 2018 | 32969 | 11% | 6% | 12% | 8% | 17% | 11% |
| March 2019 | 38673 | 17% | 15% | 12% | 15% | 14% | 12% |
| March 2010 | 29468 | -24 | 0% | 1% | 5% | 11% | 9% |
| March 2021 | 49509 | 68% | 15% | 14% | 10% | 10% | 14% |
| March 2022 | 58569 | 18% | 15% | 15% | 13% | 11% | 15% |
| Opportunity for profit | 29/43 | 34/41 | 36/39 | 33/34 | 29/29 | 24/24 | |
*Total years with positive returns
This table demonstrates that while short-term returns can be highly volatile, longer-term investments tend to offer more stable and positive returns.
6.Lessons Learned from Rolling Returns
What insights can we glean from rolling returns?
- Long-Term Perspective: Investing is akin to a marathon, not a sprint. Focusing on long-term goals, such as retirement or funding children’s education, helps mitigate the anxiety of short-term market fluctuations.
- Reduced Volatility: As the investment horizon lengthens, the impact of short-term volatility diminishes, leading to more predictable returns.
- Informed Decision-Making: Understanding rolling returns equips investors to make decisions based on comprehensive data rather than reacting to immediate market movements.
7.Final Thoughts
By understanding rolling returns, investors can:
✅ Stay invested for the long term and avoid emotional decisions.
✅ Reduce the impact of short-term market volatility.
✅ Make data-driven decisions instead of reacting to daily price movements.
✅ Build a well-diversified portfolio to manage risks effectively.
However, while rolling returns provide valuable insights, interpreting them correctly and applying them to your personal financial plan requires expertise.
This is where a Certified Financial Planner (CFP) comes in.
- A CFP can help you create a long-term strategy that aligns with your financial goals, risk tolerance, and investment horizon.
- They can guide you through market downturns so that you don’t make fear-driven decisions.
- They can ensure proper diversification by balancing equities, debt, and other asset classes based on historical performance and future needs.
In essence, rolling returns act as a guiding light, helping investors navigate market uncertainties with confidence.
But having a CFP by your side ensures that you stay on the right path, avoid common pitfalls, and make informed financial choices.
So, the next time you see a stock market dip, ask yourself—“Is this just a small wave, or should I look at the bigger picture with professional guidance?”
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