Ever seen a house of cards collapse? Well, that exactly what it seemed like in March 2020 when the equity markets witnessed a swift decline. However, from then on there has been good recovery. In fact, presently the frontline indices are at their all-time high level. In the month of March 2020, S & P BSE Sensex registered a low of 25,638 and from there it went all the way up to 44,825 to make a record high in just a matter of few months. This recovery was so quick that many investors started moving to an all-equity portfolio. In fact, it even led to a huge spurt in the opening of new Demat accounts. So, should you have an all-equity portfolio? But before we tackle this question, let us have a look at the journey of S & P BSE Sensex from 1980 till today.
The above chart clearly depicts a rosy picture of the equity market. You may say that in all ways it makes more sense to have an all-equity portfolio. Even S & P BSE Sensex’s compounded annual growth rate (CAGR) for this period was 15.84 per cent. It, therefore, seems to be a foregone conclusion to have an all-equity portfolio as the long-term return to seems to be quite healthy. In order to understand this, let us take the one-year, three-year, five-year, seven-year, and ten-year rolling returns for the period 1980 to 2020. Further, we would also understand its risk via standard deviation.
As is seen from the chart, the one-year returns seem to be quite volatile. Therefore, if you are planning to invest in equity for the short-term, then we would say that’s a bad idea. You can just trade in the short-term period but if you want to invest then it should always be a long-term proposition.
Even the three-year rolling returns show quite a bit of volatility.
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