When your friends or colleagues talk about the amazing returns, they or someone they knew made in the equity market, it is very easy to start experiencing FOMO (fear of missing out). But please remember that it’s human nature to talk about the gains and not about the losses someone might have suffered in the equity market.
So, before you jump onto the wagon, you must first make up your mind and decide whether you have the right temperament to start, and not just start but to stay invested in equity.
- Direct Equity or Equity Mutual funds
The first and most important decision is whether you should start to invest directly in equity or you should use the help of Equity Mutual Funds.
Direct investing is very risky and very few people spend enough time to analyze and make the right decision of which sector and which stock to buy, when to review, when to sell etc. The same thing is being done in a systematic and professional manner by Equity Mutual Funds.
They have a team of qualified professionals who monitor their equity portfolios on a daily basis. You pay small fee to get a qualified fund manager who would take care of investing your hard-earned money. A Systematic Investment Plan (SIP) in an Equity Mutual Fund would generate good returns in the long run.
- Invest in Equity for a longer time horizon
You should start investing in equity if and only if you have a time horizon of 5 to 7 years at the very least. If your time horizon is less than that, you would probably be better off investing in a safer asset class like debt funds, since in a shorter time horizon there are greater chances of negative returns and you may find that your investment has lost considerable value just when you need it. Historically it has been seen that chances of negative returns are very minimal over longer investment horizons.
- Trading on the Headlines
You have to have the right temperament to invest in Equity. Don’t let your emotions and the emotions of the herd carry you away. Markets will rise and fall, they will stay volatile – don’t try to ride those waves. If you have started an SIP in an Equity Mutual Fund then just keep investing regardless of the market direction. Always remember, when markets are down you get more units for the same price. So just stay focused on your goals.
- Equity is a must if you want to multiply your Wealth
Do not be afraid of market volatility. You need to make inflation beating investments to achieve your financial goals in the long run. Equity is one asset class where you can expect 12% annualized returns provided you keep investing regularly and remain invested.
Remember this quote by the author of Rich Dad Poor Dad, Robert Kiyosaki, “It’s not how much money you make but how much money you keep, how hard it works for you, and how many generations you keep it for”.