M.K.Prabhagharan Stock and Share Analyst Unclear investment goals
How to protect your financial goals from stock market volatility
If stock market volatility is giving sleepless nights to equity investors, even those with long-term SIPs are not without worries. Anybody who started an SIP in stocks about 10 years ago has earned very little. The SIP returns from the Sensex in the past 10 years is a miserly 6.13%.
We haven't considered dividends for this calculation because retail investors can't buy the Sensex directly and have to invest through an index fund. However, we have also not factored in the cost of the index funds, which neutralises the dividend yield.
The poor returns from the Sensex is worrisome for investors who may have assumed higher returns from their equity funds when they started SIPs 10 years ago. Financial planners usually assume 12-15% returns from equities when drawing up a financial roadmap for a client.
Imagine the plight of an investor who might have started a 10-year SIP in 2006 on the assumption that his investments will yield 15% returns. If his SIPs have given only 6-7%, he would have missed his target by a significant margin.
Stock market moves in cycles, with bull runs followed by bear phases. Old timers will remember the spectacular returns churned out by stocks during the Harshad Mehta rally in 1992. The 10-year SIP would have yielded a gargantuan corpus of Rs 1.2 crore. But what if your goals coincide with a bear phase.
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