Holi, the festival of color is just is here. The colors of the festival add vibrancy to our everyday mundane lives. But why restrict this gaiety to a single day of the year? Ask yourself, what adds color to your life?
Many would say reaching your life goals brings true joy, happiness, and a sense of satisfaction. To most these goals are priceless. And they work hard to turn these life goals into reality. When you achieve them, it truly makes your life colorful.
So how do give your ambitious life goals, their shape, and form?
Think Long Term
A smart, long-term investment plan ensures that you save enough to gift yourself a stress-free and financially stable lifestyle. A planned approach to investing allows your fund to grow over time making it possible to reach your life goals.
As an investor, you may be spoilt for choice. A lot depends on having clarity on your life goals. You can pick from the best investment avenues – money market securities, shares, bank deposits, bonds, or perhaps dabble in market-linked products. But how do you choose the best option?
Between the options available, equities as a long-term investment instrument puts you in a more favorable position to get higher returns and help in personal wealth creation. This, in turn, helps you realize your life’s aspirations.
Fear of Investing in Equities
Data over the years shows equities have been one of the most rewarding asset classes for investors. Nifty50 closed 2021 with gains of approximately 24.1%. Now, how does that compare with an average return of let’s say the last 10 or 20 years?
Calculating from 2001 onwards, Nifty has recorded a CAGR of 15% whereas if we take only the last decade, the figure is 14.1%. Despite the potential high gains, only 5% of Indian investors choose to put their money in the stock market.
So, why is there a hesitancy among people that keeps them away from investing in stocks?
For starters, many believe that delving into the stock market is only for the super-rich and successful. Then, there is a class of investors who feel that they do not have adequate funds to invest in equities.
But the majority of people are simply afraid of the inherent risk of losing their hard-earned money. The question that needs answering here is – what is this ‘risk’ factor?
Addressing Market Volatility
Simply put, it is the fear of market volatility that keeps investors away from equity investments.
Volatility in equity markets can be triggered in several different ways – uncertainty in government policies, geopolitical unrest in the region, or maybe a rocky economic landscape. The list is actually endless. Markets tend to overreact to news or information related to these factors that result in this volatility.
Even the most seasoned investor’s nerves can get rattled in such circumstances. But markets will be volatile because that’s the nature of the beast. Historical data suggests that with an increase in the holding period, the possibility of positive returns from an equity investment portfolio is far greater than regular savings.
Benefits of Long Term Equity Investments
Each investment avenue has its own level of risk and returns potential attached to it. Typically, the higher the risk, the greater is the return promise. Generally, equities carry the highest risk and are also known to provide higher returns.
Here’s how that happens
Gain From the Power of Compounding:
Stock markets are in the habit of rising despite falls. The possibilities of negative returns are reduced significantly if you remain invested through the holding period.
This is where the power of compounding enters the scene. As an investor, you will gain in the long run at every instance when the value of each unit of your investment increases. Compounding is a disciplined way to build wealth so long as you stay invested for the long term. The earlier you begin investing, the better compounding will be.
Massive Potential to Earn High Returns:
Investing in equities comes with two-fold benefits. You derive returns from capital appreciation as well as income from dividends. If your chosen stocks are backed by strong financials, the income from dividends becomes more or less regularized.
However, even if you do not generate dividend income, the massive potential to earn high returns from equity investment far outweighs the risks.
Beating Inflation and Boosting Wealth Creation:
Inflation can come down hard on anyone who tries to ignore it. Therefore, understanding the impact of inflation on your long-term life goals will play a key role in how you structure your long-term investments.
The aim should be to ensure that your investments earn a higher return compared to the rate of inflation. With conventional forms of investing that are no or low risk, the wealth creation opportunities may be limited. However, if you choose to invest in equities, even though the risks are omnipresent, there are opportunities for greater rewards too.
Simply put, Equities play a critical role in portfolio diversification and wealth creation. It will help you create more wealth letting you beat inflation in the future.
Ready to Invest in Equities?
Read more: How Long-term investing helps create life-changing wealth – TOI.