The "monkey investment experiment" is a concept where investors choose stocks or investment options randomly, without relying on expert advice or extensive research.
It suggests that for some investors, a simple, diversified approach can yield satisfactory returns over the long term.
Random Selection of Stocks or Funds: In the monkey investment experiment, a layman investor selects stocks from popular stock market indices like Nifty 50 or Sensex in India.
For mutual fund investors, this means selecting exchange-traded funds (ETFs) that track these indices. The idea is to make selections without in-depth knowledge or expert guidance.
Benefits for Stock Market Investors: For long-term stock market investors, this approach relies on the assumption that by investing in a well-diversified index like Nifty 50, the performance of their portfolio will reflect the overall market performance.
This is because weaker companies eventually drop out of the index, potentially reducing the need for active monitoring.
Benefits for Mutual Fund Investors: Mutual fund investors can achieve a similar diversified approach by investing in Nifty or Sensex-related ETFs.
These funds aim to replicate the returns of the respective indices, providing investors with an average return over time.
Historical Returns: The text mentions historical returns for Nifty, indicating that it has delivered positive returns over various time frames, such as year-to-date (YTD), one year, and five years.
The idea is that a monkey investment experiment during such periods would have yielded returns roughly in line with these historical figures.
Expected Returns: According to experts, in the long term, investors can expect at least a 12% Compound Annual Growth Rate (CAGR) return on their investments through this monkey investment approach.
Risk Consideration: The choice between direct stock investment and mutual funds depends on the risk tolerance of the investor.
High-risk investors may prefer direct stock investment, while those with a lower risk appetite may opt for mutual funds, which offer greater diversification.
In summary, the monkey investment experiment suggests that for investors who find it challenging to select individual stocks or make complex investment decisions, a simple and diversified approach, such as investing in broad market indices or ETFs, can potentially yield satisfactory returns over the long term.