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News, these days, is rife with discussions about the state of the Indian economy and its growth prospect. Every other day, a domestic or an international research report is released, predicting the possible economic growth rate of India. Analysis of such reports invariably leads to one clear takeaway – it is the right time for retail investors to be a part of this growth story. If you find yourself wondering what does this mean and how can you accomplish it, here are some tips.
Equity is best investment option
The historical market data shows that when compared with other asset classes, equities have reported higher returns over a long term. From 1979 to 2018, when average inflation stood at 8.1%, FDs offered an average return of 9%, gold offered a return of around 10%, real estate investments offered approximately 13%, while equities offered 16% returns in the same duration, thereby, beating inflation significantly.
The quality of equity to give inflation-adjusted returns has made it an integral part of every financial plan. Be it planning for retirement, an international trip, children’s education or other long-term goals, a healthy dose of equity in the investment portfolio is regarded as a must. The value appreciation in investments provide by equity is unmatched and builds a strong case to include this asset-class in your financial plans.
In spite of going through a number of recessionary phases time and again, global equities have given more than double the returns on an average per year. The domestic index, Sensex, has multiplied by more than 360 times since its inception in 1979, giving a CAGR of approximately 16%, even after periodic market corrections.
How to invest in equities
Though equity investment makes sense in the light of its merits, many investors still shy away from taking the plunge. Misleading information and lack of understanding tend to keep investors away from stock markets. However, investment in equity is not as complicated as it is made out to be. Below are a few simple steps you can take to harness the potential of this market:
Research – Making investments in the equity markets is not rocket science. Once you have gained clarity on markets, it is easy to make your money work for you. Do basic research on how markets work and various concepts of equity investing. Rely on credible online resources and financial gurus to gain requisite insights. Do not make any decision on hearsay. Do proper homework- ask questions and seek answers to make an informed decision.
Observe and learn – Observe what is in demand and moving fast. For instance, a weekend trip to a local mall can show you the wide range and variety of snacks on the shelf under the brand of few giants in the retail sector. While driving to the mall, you notice the traffic which indicates growing two-wheeler and car sales. Once you have identified the products that are in demand and likely to be sought after, in the future, all you need to do is identify the companies that make them and invest in those companies.
Identify good stocks – Based on your research, identify companies that have business opportunities available in the sectors you identified. Ensure that they are managed by capable and visionary management. Check the track record of business to withstand challenges. This will serve as an indicator of their business and management capabilities which are crucial factors for success.
Take a long-term horizon – Economic and business cycles are generally believed to last for five-seven years. It would be futile to get perturbed and create panic due to short-term market movements. In fact, regard these corrections as an opportunity to accumulate quality stocks. If you have invested after conducting thorough research, be rest assured that you will accumulate inflation-beating returns over the long-term.
Seek expert help, if need be – If you feel overwhelmed with the process seek out professional help from a stockbroker. With their market understanding, they can guide you in achieving an efficient allocation of your limited resources to reap maximum benefits. Just like you go to a specialist and pay a consultation fee for curing specific ailments, visiting a brokerage house can cure your portfolio of stagnation and less than optimal returns to improve your financial health.