By Deepak Singh
Every investor has a dream to grow their wealth consistently over the long term. While some succeed in their efforts, others end up either losing money or making small gains despite the overall market posting handsome gains. Have you ever thought about what successful investors do? They use their intelligence and start investing at an early age and distribute the available investable fund smartly in a way that could yield profits. However, other sets of investors make decisions based on market grapevine and rumours. Most of the time, such trades result in a loss for the new investor and only the operators make money.
There is no benchmark yardstick in which you diligently get returns but if you start investing at an early age and diversify your portfolio among varied asset classes like equity, debt, and commodities, fixed income instruments like bank deposits then you are bound to make good returns over time. It is very important to start investing early and the thumb rule to invest is to have 100 minus your age in equity and the remaining investable amount in other assets like debt, real estate and gold ETF which can lead to your portfolio at around a CAGR of 11-12%
Most people at the age of 25 years enter the earning sphere either through a job or ancestral businesses, immediately after completing higher education. Hence, they remain mostly unaware of investment tricks. Around this age, a financial advisor approaches you with an assured return offer which sometimes works but often fails. This is where investors start losing money and building a negative perception about the equity market and prefer to move to an option with fixed income like bank deposits and life insurance policies. New investors get into the trap of ‘high returns in the short term’ and the worst part of this impression is that such investors change their decisions within a few initial months of investing which ideally should not happen, you should trust the process of investing.
Investors need to spend some time in the equity market to understand profit-making gimmicks and then make a decision. This will allow you to choose stocks and sectors which may yield you better returns and help you in wealth creation. A Systematic Investment Plan (SIP) is a better instrument for entry-level investors who can carve out a portion of their salary and pump in every month. Over a long-period horizon – say after 20 years- the SIP investment yields profit between 11-12%. Even if the stock market moves in a downward direction, the recovery will certainly help beat even extremely high inflation with a wide margin.
Fund managers distribute your SIP amount in a number of specific stocks and sectors. They also pick up some commodities and fixed income asset classes from the SIP amount so that even if one stock or sector sinks, profits from sectors would square off this loss and eventually give you a good return. Normally, equity investment decisions are taken by your investment advisors whether to go directly into primary or secondary markets or choose a sector with high returns potential. Options are also available for investors to take decisions directly and invest in emerging sectors or individual stocks for better profit. It is immaterial who takes the decision, but your active involvement and continuous watch on your investment would help you in wealth creation over a period of time.
(Deepak Singh is the Chief Business Officer at Reliance Securities. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)