Can you get rich investing at market highs every year? 30 years, 3 investors, 1 big myth

Assume three types of investors invested ₹1 lakh/year each in Nifty500 TRI for three decades.

The first was a lucky investor who always managed to perfectly time the market, entering at the lowest point of the year.

The second investor never tried to time the market, but invested regularly for 30 years.

The third was an unlucky investor, who saw the market jump to the highest point of the year whenever he invested over the three decades.

Given the above scenarios, most would assume the lucky investor accumulated the largest corpus, the regular investor built decent wealth, and the unlucky investor simply ended up unlucky, with very little wealth.

However, an analysis based on the past 30-year returns of Nifty 500 TRI shows that the above assumption is not entirely correct. While the first two investors accumulated wealth as expected, the third, unlucky investor, did not fare as poorly as one might think

The analysis by Anoop Vijaykumar, Head of Equity at Capitalmind Mutual Fund, shows that even the unlucky investor accumulated ₹4 crore by investing ₹1 lakh/year into Nifty500 TRI for 30 years.

In Capitalmind Flexi Cap Fund's first factsheet, Anoop analysed the pain of trying to figure out the right time to buy the market with the following assumptions:

• The lucky investor buys at the year’s low

• The regular investor buys on the first trading day (no timing)

• The unlucky investor buys at the year’s high (highest close in every year)

• Investment made in Nifty500 TRI with dividends reinvested

Over 30 years, the three investors invested ₹30 lakh each. But they would have ended with the following wealth, according to the analysis:

• Lucky investor: ₹6.4 crore. .

• Regular investor: ₹5.2 crore. .

• Unlucky investor: ₹4.0 crore.

"Perfect timing helps. You won’t get it. You don’t need it. Turns out even the worst timing doesn’t hurt as you might fear," said Anoop.

How unlucky was the unlucky investor?

In terms of annual returns, there was a 1% point per year difference in returns (XIRR) of regular and unlucky investors and 2.3% difference in returns of lucky and unlucky investors.

"That’s the full penalty for buying the worst close every year for thirty years. Not trivial. Also not a reason to contort yourself to avoid the next 2% uptick," said Anoop.

The analysis shows that timing doesn't matter much, but investing regularly and starting early could be the keys to accumulating wealth over the long term.

"Over three decades of historical market data, a boring rule, to continue buying regularly, even with disastrous timing luck, would have resulted in an outcome that comfortably outpaced inflation and fixed deposits," he said.