"EQUITY"- Richer Journey That Leads To Success

 


"One of the most important things every investor and cash holder must cognize: never let your emotions persuade your investment decisions."

One of the main reasons why people move towards towards investing in stocks is the possibility of making quick money and to get rid of job life. While that does sound enticing, especially when you're old, you need to be smart about where you invest your money. Having said that, there are mainly two ways of making money—by working, or by making your money work for you.



Not everyone likes equity investing. Some equate it with gambling; some see it as a zero-sum game, and therefore, wasteful; some are suspicious because money seems to be made easily; some dislike anything that does not come with guarantees.

But rather than keeping your cash stashed away if you choose to invest your money in equity, then you're getting your money to create more money in the form of higher returns. Another way is to let your stock grow in value and then buy and sell them at a profit.

Generally, the word 'Equity' is closely associated with 'Risk' and it is rightly so. However, it is important to have an Equity component in the portfolio as a part of asset allocation and portfolio diversification,

If you're a part of the Public Provident Fund scheme offered by the Indian Government, you've already taken part in India's tried and tested way of getting long-term returns.

However, PPFs and Fixed Deposit offer lower returns when compared to stocks. That is why stocks are the best way to boost your retirement amount.

"The wealthiest people in the world today are equity investors. Don't get left behind because you don't understand how a business should be run".



The benefits of having 'Equity' in a portfolio:

·   Helps in beating inflation

·   Assists in portfolio diversification

·   Excellent Return on Investment in the Long-Term

·   Regular Income by way of "Dividends"

This is the simplest reason to invest and is often at the core of why people buy stocks.




Saving or Equity Investing:

Saving is the safer route because the dollar amount in your bank account won't typically decrease unless you withdraw funds, but interest rates on savings accounts don't allow your money to grow very quickly. Unfortunately, interest rates are often lower than the rate of inflation. This means your savings could lose purchasing power over time.

Rightly said:

"Putting your money in the securities market is risky yet profitable. Whereas, holding that cash is ineffectual".

When choosing rightly, you can grow the money you invest by anywhere from 10%-12% per year over the long term in Equity as compared to a saving account that gives you not more than 5%-6% yearly.

If you invest Rs.30,000 in the stock market today and it gains roughly 10% per year, you'll turn that Rs.30,000 into Rs.78,000 (approx.) in just 10 years.

Think about that.




Imagine 10 years ago you put Rs.30,000 into an account, invested it in some stocks, made some trades, and now 10 years later you have your original Rs.30,000 plus another Rs.30,000 you made from investing.

Or imagine a longer-term example where you're both a good saver and a smart investor. Imagine you invest Rs.30,000 of your savings into the market every year for 30 years.

That's Rs.30,000 this year, another Rs.30,000 next year, another Rs.30,000 the year after that, and so on for 30 years. So, in total, you will have invested Rs.900,000 in stocks over 30 years (Rs.30,000 per year x 30 years).

 

 

And let's assume you achieve the same average yearly returns we used above, 10% per year.

So, you've invested a total of Rs.900,000 over 30 years — but guess how much you have in your account at the end of that 30 years.

You know it's going to more than the Rs.900,000 you invested over 30 years because the money will have grown. After all, you invested it in stocks.

But it's how much it's growth that's truly surprising. That Rs.30,000 investment per year for 30 years would now be worth Rs. 54,28,303

Bottom line — through regular investing, you can turn Rs. 30,000 per year into more than a million over 30 years.

Now, Rs. 900,000 of that million is the money you directly invested each year. But the other Rs. 45,28,303 is money you made from investing in stocks.




 

Investing in Equity or Fixed Income:

Equity investing has the potential for a higher return on your money than fixed income investing. If you invested in the stock of a particular company that has good management and valuations and also potential of attaining good profitability in future, you could experience a large return on your investment.

Whereas the low return on most fixed-income products can mean your investment might not even be able to keep pace with the rate of inflation, which in effect means that you're actually losing money in the long run.

Let's understand this by way of the below illustration:

If a debt scheme can double your money in 7 years@12% p.a. The Equity schemes can double it in 4 years@20% p.a. If you have invested Rs. 100,000 for a period of 20 years. It can be clearly seen here that the small difference in %age return can make it big in the long term. Rs. 100,000 invested at the rate of 12% for a period of 20 years would give you Rs. 9,64,630 and the same amount invested at the rate of 20% for the same period would give you Rs. 38,33,760

 

Whether equity or fixed-income products are right for you will be determined in large part by your tolerance for risk. If you're something of a riverboat gambler, you may prefer equity products. If you still have your first piggy bank and it still contains the first pennies you ever owned, the safer fixed-income track may be better for you. You can also strive for a balanced portfolio by investing in a combination of fixed-income and equity products.

Investing by yourself is thrilling, but fraught with mistakes as you climb the learning curve. Choose your pick but do choose equity.

So, what is stopping your money to grow….




Open your eyes to a fresh financial perspective.

"A whole new look at Personal Finance - to make it simple, accessible and workable for all"

 

 

Author Bio: Rashi Sadhu is a Financial Planner and a Finance Content Writer. She’s on a mission to spread financial literacy. She believes financial freedom should be a vital goal for every common person. Her passion involves writing poetry on real scenarios

 

Connect with her on twitter:  https://twitter.com/RashiSadhu

 

 

Sources:

www.equity4profit.in

www.moneyunder30.com

www.budgeting.thenest.com