Introduction
The famous saying ‘Don’t work for your money, let your money work for you’ comes true in the stock market. As an investor, you should use the trading opportunities available in the market to grow your money. However, these investments come with various risks, which you need to understand, study, and learn how to circumvent. One of the best ways you can minimise risk in stock market trading is by fund diversification and staying invested for the long term. Long-term investments allow you ample time to ride out the highs and lows of the market and enable steady growth by applying the principle of compounding.
There are several ways to make money in the stock market, but for that, you need to find the right stock that has the potential to give good returns. In the course of this blog, we will look at some of the top-performing stocks based on the CAGR from the past five years.
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But What is CAGR?
Before we dwell on the stocks, let’s understand the concept of CAGR so you can utilise it when investing. Compound annual growth rate (CAGR) is the average growth rate of any investment over a specific time, usually a year. The concept assumes that any earnings you made during this said period were reinvested. It helps to compare the return on investment and the performance of a certain stock, mutual fund, or any type of investment. This benchmark is then used to predict or project the future returns of an investment.
Now that you have understood the concept of CAGR, let us dive into the best-performing long-term stocks.
List of Top Long-term Stocks
Here are the top long-term stocks that have given the highest CAGR in the past five years.
The data presented here is as of December 2nd, 2024, and is presented in descending order based on the five-year CAGR. The stocks in this list are selected from the NIFTY 500 index.
Who Should Buy Long-Term Stocks?
Long-term stock can help you build wealth steadily and withstand volatility in the markets. These stocks can outpace inflation and are a more conventional form of saving, which can help you save for major life events such as retirement, buying a home, etc. If you want to build wealth as opposed to gain fast riches, then they are an ideal investment. Long-term investments allow you to capitalise on compounding, growing your money substantially over time.
What to Look for in Stocks?
Choosing the proper stock for long-term investment requires meticulous analysis. The following are some variables to evaluate:
- Company’s Financial Health
- Company’s Track Record
- Company’s Growth Potential
- Company’s Leadership and Management
Advantages of Investing in Long-term Stocks
- Power of compounding: The longer you stay invested, the better your returns, thanks to the power of compounding. Compounding means "adding interest on interest". Compounded interest grows over time by earning interest on both the initial investment and the previously earned interest.
- Capital appreciation: Long-term investments help you build wealth. Small investments may grow substantially as the company grows and its stock price rises.
- Lower Volatility: Stocks fluctuate short-term, but if you stay invested for a long time, the volatility gets smoothed out as the market grows over time.
Things to be Aware of
- Market Fluctuations: Although the market typically grows with time, it may still encounter periods that include economic slumps that can have a detrimental impact on stock prices. Your investments may experience a temporary or even permanent decline in value in that case.
- Company-Related Factors: Stock performance depends on the company’s performance. Financial challenges, management issues, and industry instability may lower the company's valuation, in turn affecting your stock value.
- Liquidity Issues: Long-term stocks may be hard to sell at the right price. A weak market or company’s downturn may make it harder for you to find the right buyers.
Conclusion
There are many stocks that have given a great return in the long term in the Indian stock market, many of which are not mentioned in this list. Before making any investment decisions, ensure that you conduct a thorough investigation, understand the company's portfolio, and evaluate its financial performance and prospects. You can use a CAGR calculator to identify the possible returns from stock trading and then make investing decisions.
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