This analysis examined stock market returns in India from 1990 to 2014 to test common investment advice. It found that while the probability of capital erosion decreases with longer holding periods as advised, average returns actually diminish over 5-20 year periods, averaging only around 12%. This is just 3% higher than low-risk tax saving bonds. So staying invested long-term does reduce risk, but may not lead to significantly higher returns as often claimed.

1. We all been told that stock market is the best asset class available to grow our
wealth phenomenally and have been of repeatedly told of the following basic
rules to adhere
 Stay invested for long time ( minimum 5 year horizon and if we
stay invested further our wealth will multiply manifolds )
 Ensure that your major part of portfolio in large caps to protect
your capital even during bear runs
 Never time the market and keep on investing to build the fortune
The following analysis is done to check whether all above advises are true
How this analysis is done
 BSE sensex daily values from Jan 1990 to July 2014 were compared for 1
year, 5 year , 15 year & 20 year returns. This is done on daily basis to
understand the investment returns
The results are surprising
 Investing for a longer period reduces the probability of capital erosion -
yes the advice is true
 But the average return diminishes when we stay invested for a longer
term
 Also . average return is just around 12% for 5 – 20 year period – which is
just 3% higher than a normal tax saving bond with 0% probability of
capital erosion

2. Investment period
1 Yr 5 Yr 10 Yr 15 Yr 20 Yr
Probability of negative return 33% 15% 3% 0% 0%
Probability of 0-8% return 15% 32% 28% 5% 3%
Probability of 8-12% return 6% 11% 8% 44% 62%
Probability of above 12%
return
46% 42% 61% 51% 35%
12.5%μ =
12.1%μ =
11.6%μ =