Whenever you speak about investment in equity(Shares) with people, majority of the answers will be a big “NO”. Reason they express are-risky, no time to concentrate, show me who gained profit from this and their past experience about investment.
Now let us look at the few points which you must know before investing in equity.
Risk and Reward-It is always best thing to remember that risk and reward are directly proportional. You take more risk means more reward (either of profit or loss). So how to mitigate this risk during investment of Equity? Simple way of doing that is to diversify it. Suppose you have Rs.100 with you then instead of putting all your money in one investment like equity better to do it in other avenues too. This diversification again need to be according to your risk appetite and financial goals. Also if you are the first time investor and not have enough experience and time about investing directly into equity, then the best available option is Mutual Fund. By investing in mutual funds, you are mitigating your risk by investing in pool of fund into pool of stocks according to predefined investment strategy.
It is risky thing for the day traders or speculators but for long term investors it is always a best avenue of investment to generate a handsome returns.
Waiting Period-Now let us look at the ideal waiting period of investment in equity. It is always advisable to invest in equity oriented investments if your waiting period is more that 5 yrs. Will show in below chart who are get benefited by investing in equity. This below chart will definitely the reason to say that “YES YOU NEED TO INVEST IN EQUITY TO GAIN PROFIT BUT LONG TERM IS IDEAL INSTEAD SHORT TERM”.
Knowledge-It is always best thing to gain the basic things about the products where you are investing. Same rule applies to equity too. Never invest on the advice of your friend or depending on the news items of today’s so called “Business TV Shows” or hot tips of day’s by your broker. Because each person’s financial conditions are different. Hence it is always advisable to gain knowledge, analyse your financial situations then accordingly act. I used to tell my clients to gain knowledge more. You are investing about 8-10 hrs daily to earn the money. But if you not spare your time about 5-10 hrs per month to gain knowledge about where to invest that money, then it is the biggest risk your taking in your life. Because dont know in what way you will get cheated. So the answer is be knowledgeable.So from the above table you can clearly identify who got better returns without any negative returns. Investors whose waiting period is more than 15 yrs never underwent losses but always got profit. Whereas, as your waiting period decreases you can see the probability of loss to increases. Hence it is always a better option to give time to market for better returns. You may also notice from the above table, as the waiting period increases your return too decreases. This is the best example to show you the relationship between risk and reward.
Age-Act according to your age. Suppose you are young then better to invest major chunk of your investment into Equity. In the same way, if you are above 50 yrs then it is best to reduce your portfolio towards equity.
Hope above few points made you helpful before you investing in Equity. Happy Investment!!! 🙂