Investing in equity is one of the most dynamic things in the investment markets. With the highest returns being offered, it is obvious that investors get attracted to equity investments. Investing in equities is not everyone’s cup of tea. This requires a lot of risk-taking and timing of the markets.
Although the returns from equity are quite high, there are no assurances or guarantee of returns. There are several instances when the investors only come across blood-letting in their portfolio. In such instances, patience works wonders and those who stay out during unfavorable times, get rewarded (of course accompanied by some calculations). This set of investors is highly inclined towards equity investments even if they know only a little about them.
Given the risk involved in equity investing, it becomes all the more important to make an informed decision as it involves your hard-earned money.
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Here are 7 things you must know on equities before investing in them:
When you go investing in equities, you are essentially investing in the future of the business. As there is no guarantee of the future, the equities also do not come with a guarantee. The markets are untamable and unpredictable. Yes, some estimates can be made but nothing is sure fire. An equity enthusiast finds it more exciting as there is no surety of the future. However, conservative investors may tend to find it a little disturbing and scary.
Generally, equities are sold on the note that you will become a millionaire, but never fall for this trap. There is nothing like overnight success or Re 1 becoming a million. It is all about making the right investment decisions with the most optimal portfolio consistency. Whenever you come across any such advertisement that claims to exponentially increase your money, it is your duty to dig deeper, research and make an informed decision.
When you invest in equities, make a precise investment. Even the seasoned investors who have been in this business for quite some time; also make mistakes. Yet, several analytical tools are available in the markets that can help make this decision, yet it needs to be done extremely carefully.
Investing in mutual funds, commodities, real estate or stocks is all a game of timing. However, timing the markets is crucial, as there is nothing like the right time to buy. Each phase of the stock market has its pros and cons. A bullish market would mean high returns at higher prices. A bearish phase on the other hand, means a fall in prices of shares. This is an excellent time to invest in good shares for the long term.
Information plays a major role in equity investing. Mutual fund investment decisions are generally based on hear-say or peer pressure. Advertising also plays a vital role in altering and modifying the mindset of people. Urban investors have greater exposure to ads, advice, and trends in the investment markets and get highly influenced by them.
The rural investors on the other hand, do not exercise much of the required diligence and make an investment in the brands or fund houses that are famous. This turns out to be a disadvantage for the investors as they do not have access to the right information. Hence, when you get pushed by a fund houses’ aggressive marketing, always do your research and make an educated investment decision.
There has never been a case and never will be one where the investor made a million overnight. These things simply do not happen and cannot happen unless you win a lottery. While investing is a game of patience and capitalizing on time, you have to be extra careful on what is happening around and how you can make the maximum out of it. Players like Benjamin Graham, Warren Buffet, Peter Lynch earned all their wealth over a lifetime and are still working towards more.
See Also: Importance of Financial Planning
Basic investment decisions on past returns is a common trend among investors. Although most of the time this is credible, it is not a sure fire way of predicting the future. In order to rely on past trends, you must look at the last 10 year returns to accurately gauge the growth rate of the target fund. There are several other parameters apart from past trends that must be evaluated and considered before investing.
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