How many millionaires do you know who have become wealthy by investing in bank savings account?
You may have heard that investing in stocks can be a great way to create wealth over time, and it’s certainly true.
The stock market is made up of exchanges, like the SENSEX and the NIFTY. Stocks are listed on a specific exchange, which brings buyers and sellers together and acts as a market for the shares of those stocks.
Stock prices on exchanges are governed by supply and demand, it’s very simple. At any given time, there’s a minimum price someone is willing to pay for certain stock and a maximum price someone else is willing to sell for shares of the stock for. Since both investors cannot be correct, it is an adversarial system. In short, one investor will make profit and the other will suffer loss. Therefore, it’s important to become well versed on the investment you are considering.
Let us look at SENSEX, how it performed in long term.
SENSEX
Year Ending |
Sensex
Closing Points |
Rolling 1 Year Growth | Rolling 3 Years Growth | Rolling 5 Years Growth | Rolling 10 Years Growth | Rolling 15 Years Growth | Rolling 20 Years Growth |
Mar-79 | 100 | ||||||
Mar-80 | 129 | 29% | |||||
Mar-81 | 173 | 34% | |||||
Mar-82 | 218 | 26% | 30% | ||||
Mar-83 | 212 | -3% | 18% | ||||
Mar-84 | 245 | 16% | 12% | 20% | |||
Mar-85 | 354 | 44% | 18% | 22% | |||
Mar-86 | 574 | 62% | 39% | 27% | |||
Mar-87 | 510 | -11% | 28% | 19% | |||
Mar-88 | 398 | -22% | 4% | 13% | |||
Mar-89 | 714 | 79% | 8% | 24% | 22% | ||
Mar-90 | 781 | 9% | 15% | 17% | 20% | ||
Mar-91 | 1168 | 50% | 43% | 15% | 21% | ||
Mar-92 | 4285 | 267% | 82% | 53% | 35% | ||
Mar-93 | 2281 | -47% | 43% | 42% | 27% | ||
Mar-94 | 3779 | 66% | 48% | 40% | 31% | 27% | |
Mar-95 | 3261 | -14% | -9% | 33% | 25% | 24% | |
Mar-96 | 3367 | 3% | 14% | 24% | 19% | 22% | |
Mar-97 | 3361 | 0% | -4% | -5% | 21% | 20% | |
Mar-98 | 3893 | 16% | 6% | 11% | 26% | 21% | |
Mar-99 | 3740 | -4% | 4% | 0% | 18% | 20% | 20% |
Mar-00 | 5001 | 34% | 14% | 9% | 20% | 19% | 20% |
Mar-01 | 3604 | -28% | -3% | 1% | 12% | 13% | 16% |
Mar-02 | 3469 | -4% | -2% | 1% | -2% | 14% | 15% |
Mar-03 | 3049 | -12% | -15% | -5% | 3% | 15% | 14% |
Mar-04 | 5591 | 83% | 16% | 8% | 4% | 15% | 17% |
Mar-05 | 6493 | 16% | 23% | 5% | 7% | 15% | 16% |
Mar-06 | 11280 | 74% | 55% | 26% | 13% | 16% | 16% |
Mar-07 | 13072 | 16% | 33% | 30% | 15% | 8% | 18% |
Mar-08 | 15644 | 20% | 34% | 39% | 15% | 14% | 20% |
Mar-09 | 9709 | -38% | -5% | 12% | 10% | 6% | 14% |
Mar-10 | 17528 | 81% | 10% | 22% | 13% | 12% | 17% |
Mar-11 | 19445 | 11% | 8% | 12% | 18% | 12% | 15% |
Mar-12 | 17404 | -10% | 21% | 6% | 18% | 12% | 7% |
Mar-13 | 18836 | 8% | 2% | 4% | 20% | 11% | 11% |
Mar-14 | 22386 | 19% | 5% | 18% | 15% | 13% | 9% |
Mar-15 | 27957 | 25% | 17% | 10% | 16% | 12% | 11% |
Mar-16 | 25342 | -9% | 10% | 5% | 8% | 14% | 11% |
Mar-17 | 29621 | 17% | 10% | 11% | 9% | 15% | 11% |
Mar-18 | 32969 | 11% | 6% | 12% | 8% | 17% | 11% |
Mar-19 | 38673 | 17% | 15% | 12% | 15% | 14% | 12% |
Mar-20 | 29468 | -24% | 0% | 1% | 5% | 11% | 9% |
Mar-21 | 49509 | 68% | 15% | 14% | 10% | 10% | 14% |
Probability of Gain | 28/42 | 33/40 | 35/38 | 32/33 | 28/28 | 23/23 |
- Markets are volatile in the short term.
- As the investor horizon increases the probability of loss reduces. E.g., the above table shows that, in the last 41 years of SENSEX, the likelihood of losing money for periods of 15 years or more has been NIL.
- From March, 1979 to March, 2021 markets have given a CAGR of 16.34%. Equity returns have been more than the normal GDP.
- SENSEX has compounded wealth at 16.34% over the long run. At this rate, an investment in the stock market has historically doubled approximately every 4.58 years.