The Roadmap To Succeed In Equity Investing
Equity investments are generally long term in nature, wherein one invests for atleast five years and more. However, most investors owing to market volatility tend to chicken out earlier than five years and miss out on the potential growth in returns. Data shows that in long term, if invested in the right equity scheme/category, the potential of a negative return is almost zero. This leads to the questions, is there an ideal investment timeframe.
Investment Timeline
At all times your investment must be backed by life goals. These goals could be retirement, funding kid’s overseas education, their marriage and the likes. The basis thumb rule one must remember is that if an investment goals is five years plus in nature, then one should invest into equities for meeting this financial goal. The logic here is that when investing into equities, preferably via mutual funds all the three components of investments, risk, returns and investment horizon are balanced properly. Hence, there is next to zero possibility of you missing out on meeting your financial goal. The cherry on the cake is that the returns generated from equity investing is likely to be better than any other investments products. The bottom line being longer the duration, better is the likely outcome.
Why Investors Fail in the Investing Game
There are close to 4 cr equity investors in the country. But, out of that, only 10% succeed in equity investing. Most often, investors would start their investing journey with lot of hopes and expectation of returns. As time goes by, 90% of them would not complete their equity investing journey given the change in thought process and market volatility in the interim. All of these lead to less than optimal investment experience.
Key Aspects that Make Equity Investments Work
Just like Rome was not built in a day, successful equity investors too were not made in one day. To be successful in equity investing, one has to be patient with investments and in the meanwhile constantly keep on learning the ins and outs of the financial world. There are times mistakes will be made and at such instances the better approach is to admit and learn from those mistakes. In effect, the journey can prove to be a humbling experience. If you have a personality wherein you rely on tips or suggestions or engage in trial and error method, the outcome can be disheartening.
Remember the below four characteristics of a successful equity investor:
1. Be patient when investing in equities
2. Discipline matters. Do not get swayed by short term market developments
3. Clarity of investment timeline is important
4. Keep expectations under check
By following the above four steps, one can be rest assured of keeping away from most of the traps that could hurt you in your investment journey, thereby helping to create superior wealth over the long term. Create a checklist of these and keep checking to know if you are following all of these steps and keeping your personality traits under control.
Another important aspect that many fail at is keeping investment return expectations under check. Many start investing via SIP with great fanfare but within three years they tend to discontinue their SIP. This is because most often they point out there is hardly any growth seen in the investment. The magical compounding effect they are looking for kicks in after 4-5 years only for which they have to wait patiently. When one is invested in the right set of schemes for at least 4-5 years without any expectation or comparison of returns with different products, you are very well on the highway of wealth creation. Hence, the first five years calls for great patience, expectation management and desisting from the urge to liquidate the investment.
To conclude, in the game of investing and creating wealth over the long term it is not the brightest which wins the game. The winner is the one who is the most diligent, chooses to ignore noise over short to medium term, stays focused on the goals and maintains patience throughout once investment journey. While none of this is easy, the successful 10% show that this is indeed doable.
Author
By Bharat Rao,Certified Financial Planner ,WealthSpace Services Pvt Ltd
