Should I Invest Now or Wait for a Market Correction ?

In this article, we will analyse data on the difference in returns when you invest at the peak or bottom of a market cycle and whether you should invest at market all-time highs.

Starting a SIP When Markets Are at the Peak

A recent study by a Mutual Fund house analysed the data on the difference in XIRR for two SIPs, one started at the top and other at the bottom of the market cycle. They considered the S&P BSE Sensex TRI data for the last 27 years, spread across nine market cycles. A market cycle was where the difference between the top and the bottom of the Sensex 30 Index level was more than 20%.

Let us consider two investors: Investor A, who starts investing at the top of the market cycle, and Investor B, who starts investing at the bottom of the market cycle. Both of them start a monthly SIP of Rs. 10,000. Here is how their investments will look like.

(Source: Whiteoak AMC)

Note: The data has been considered up to 29 Dec 2023

As per the above table data, during 2008-09, the Sensex 30 Index fell by a whopping 60% from its top. Let us see how the SIPs of Investor A and B, started during this period, fared. Investor A started her Rs. 10,000 monthly SIP in Jan 2008 when the Sensex was at the top of the market cycle at 25,756. She invested Rs. 19.2 lakhs over 16 years. As of 29 Dec 2023, the value of her investment was Rs. 64.3 lakhs at an XIRR of 13.8%.

Investor B started her Rs. 10,000 monthly SIP in Mar 2009 when the Sensex was at the bottom of the market cycle at 10,216. She invested Rs. 17.8 lakhs over 14.8 years. As of 29 Dec 2023, the value of her investment was Rs. 54.8 lakhs at an XIRR of 14.0%.

So, the difference between Investor A’s SIP XIRR (13.8%) who started at the top of the market cycle, and Investor B’s SIP XIRR (14.0%) who started at the bottom of the market cycle is only 0.2%.

Similarly, if you observe the other eight market cycles, there also, in none of the cases the difference in the SIP XIRR of the two investors is more than 1%. The above table has data from the last more than 27 years, spanning nine market cycles. The data shows that even if you start investing at the top of the market cycle, there will not be much difference in your monthly SIP XIRR than an investor who starts investing at the bottom of the market cycle. Hence, even if markets are currently trading at all-time highs, you can consider starting an SIP rather than waiting for a correction.

How Frequently Have Indian Markets Hit All-Time Highs?

As per market study out of the last 46 years (1979 to 2024 YTD), the Sensex 30 Index has hit all-time highs in 33 years. So, data shows that in a growing economy like India, the stock markets keep hitting all-time highs frequently. In the last eight years, from 2017 to 2024 YTD, the Sensex 30 Index has hit new all-time highs in every single year.

Currently, India is one of the fastest-growing economies in the world. The Indian economy is projected to do well in the coming years. When the economy does well, the listed companies are expected to do well, and markets are expected to keep scaling new highs.

So, as an investor, market all-time highs are not something that you should fear. Instead of waiting for a correction and trying to time the market, you should start investing through the systematic investment plan (SIP) route. Even experts cannot predict the exact market top and bottom.

Focus on Your Financial Goals Rather Than Market Levels

You should work with an investment expert and get a financial plan made for yourself. The plan will list all your financial goals and the roadmap to achieve them. You should map your investments to your financial goals and get going with them. You should stay focused on your financial goals till they are achieved rather than looking at the market levels. Market all-time highs and lows are a part of the business cycle.

Legendary investor Peter Lynch had said: “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves”. Hence, you should start investing, even if markets are at all-time highs, rather than waiting for a correction.