There is often a long gap between what we know and what we actually do. Knowing something is not the same as understanding it and putting it into practice. For instance, everyone knows a few minutes of daily exercise is good for health. Yet, how many of us actually walk, stretch, or work out consistently? Very few.
This gap between knowledge and action is quickly filled with biases, assumptions, procrastination, and social influences—be it family, friends, or the noise on social media. Over time, these shape our behavior and decision-making.
In money matters, the consequences are particularly damaging. Retail investors often chase hot tips, the next IPO or NFO, switch funds too often, or sell in panic during downturns. Such behavior disrupts the power of compounding.
Consider this: a simple SIP of ₹15,000 in an equity mutual fund, compounding at 10% annually, can grow to about ₹1.1 crore in 20 years. Yet, very few investors stay the course for even 10 years, let alone two decades.
For instance, after peaking in December 2024, gross SIP contributions dropped by nearly 20% within just three months of a market downturn by March 2025.
Studies also confirm this behavioral penalty. A Morningstar India survey (quoted in Economic Times, 2022) found that investors earned on an average 2.7%, 2.5%, and 5.8% less than the funds they invested in, over 3, 5, and 10-year horizons, respectively. This gap arises because investors redeem too frequently, missing out on compounding. Over years, this difference snowballs into a massive shortfall in wealth.
A short-term, reactive view of the markets is one of the most destructive habits an investor can have. It not only prevents wealth creation but also derails progress toward life’s most important goals. The real challenge, therefore, is not in knowing what to do, but in staying disciplined long enough to let compounding do its magic.
As quoted by prominent investor Ramdeo Agarwal – “The biggest wealth is created by staying invested through cycles, not by jumping in and out.”