Long-term stock market investors prosper whether the market is bullish or bearish

8 August 2022
6 mins read
Long-term investments almost always outperform the market when investors try and time their holdings. Let's read this article to understand why.
Long-term stock market investors prosper whether the market is bullish or bearish

Holding investments for more than a year is considered to be a long-term investing stock strategy. Holding assets including bonds, equities, exchange-traded funds (ETFs), mutual funds, and more is part of this approach. Long-term investors need to be disciplined and patient because they must be willing to accept a certain level of risk as they wait for greater profits in the future.

Many financial gurus advise long-term stock holdings. In just 11 of the 47 years from 1975 to 2022, the S&P 500 saw losses, which makes stock market returns very unpredictable over shorter time periods. Over the longer run, investors have traditionally had a substantially greater success rate.

Investors may be tempted to dabble in equities in a low-interest rate environment to enhance short-term profits, but doing so makes less sense and yields lower long-term returns. In this article, we demonstrate how owning stocks for a longer length of time may be advantageous for you.

Let’s understand the bull or bear market which is better first.

What is the meaning of a Bull Market?

The official definition is that a bull market begins when stock prices have widely gained by at least 20% from the last market slump. Bull market circumstances may endure for decades, and many wealthy investors have made extremely poor predictions about when a bull market will expire.

After rebounding from the 2008 financial crisis, the U.S. stock market was in a bullish phase until market anxiety due to the pandemic prompted a market crash in 2020. The graph below demonstrates that a bull market was maintained for more than ten years, with the exception of modest market declines.

What is the Meaning of a Bear Market?

A bear market is said to begin when stock values generally fall by 20% and continue to trend downward. People losing their employment, a decline in the GDP, and a major decline in the value of the stock market are the hallmarks of bear markets. Bear markets can present investors with purchasing opportunities and generally never endure as long as bull ones.

Pessimism and lack of confidence among investors are traits of bear markets. Investors frequently appear to disregard any positive news during a bear market and continue selling aggressively, driving prices farther down.

Even if investors have a negative outlook for a certain stock, the market may not be affected as a whole. Even though they are all individually reporting positive news and increasing earnings, practically all stocks inside the market start to decrease when the market goes negative.

Factors that Make a Market Bull or Bear?

Supply and demand, changes in economic activity, and investor psychology all have an impact on the market’s direction, whether it is bullish or bearish.

  1. Demand and supply

The supply and demand for securities contribute to bull and bear markets. A bull market is one in which there is a surplus of securities and little supply.

Few investors are willing to sell securities, whereas many investors want to buy them. Share prices increase as a result. On the other hand, in a bear market, there is much less demand than supply since there are more buyers than sellers. Prices of shares decrease as a result.

  1. Modifications to economic activity

How frequently the economy changes also affects whether the market is bullish or bearish. Corporate profits rise during a bull market, and the economy expands as a result of consumers’ propensity to spend more thanks to the wealth effect. During a bull run, trading and IPO activity both grow.

On the other hand, during a bear market, customers tend to tighten their budgets and spend less, which lowers sales and lowers company earnings. This has an adverse effect on stock market valuation, which lowers stock prices and lowers GDP.

  1. The psychology of investors

The psychology of investors and stock market performance are also interdependent. A bull market occurs when stock market prices rise, which enhances investors’ confidence and encourages them to invest money in the market in the hopes of making a profit.

In contrast, when the market is in a bearish phase, investors start to shift their funds away from stocks and into fixed-income assets while they wait for the stock market to recover.

Whether the market is bullish or bearish for long-term investment stocks in India?

A particular class of investments is referred to as an asset class. They have similar traits and features to fixed-income assets (bonds) or equities, sometimes known as stocks, for example. Your age, risk profile, level of capital, investing objectives, and risk tolerance will all affect which asset class is ideal for you. 

How about the greatest asset types for long-term investment stocks in India?

Stocks have typically outperformed practically all other asset classes, according to several decades’ worth of asset class returns. Between 1928 and 2021, the S&P 500 returned an average of 11.82 per cent annually. With the 3.33 per cent return on three-month Treasury bills and the 5.11 per cent yield on 10-year Treasury notes, this compares nicely.

In the stock markets, emerging markets offer some of the largest return potentials, but they also carry the highest level of risk. The average yearly returns for this class have traditionally been excellent, but short-term swings have hurt their performance. For instance, as of April 29, 2022, the MSCI Emerging Markets Index’s 10-year annualised return was 2.89 per cent. 

Both small and large caps have produced returns that are above average. For instance, the Russell 2000 index, which evaluates the performance of 2,000 small businesses, had a 10-year return of 10.15 per cent. As of May 3, 2022, the large-cap Russell 1000 index had a 10-year average return of 13.57 per cent.

Conclusion :

Numerous trading techniques might be advantageous for stock investors. Short-term trading strategies may enable investors with greater funds and trading expertise to profit from market fluctuations. But for people who are just starting out or can’t handle a lot of risks, it might not be an option. Long-term investment in share market India may help you profit from lower tax rates, ride the market’s highs and lows and are often less expensive. And to execute just that, don’t forget to start your new trading journey by opening a demat account online today.

Happy Trading!