The equity market is amidst a bull run that has significantly added to investors' wealth. Strong corporate earnings, robust pace of vaccination, and ample liquidity have bolstered markets that have scaled new highs of late.
While there are debates on whether markets appear overheated and a correction is on the brink or not, these nine equity lessons this Navratri will help you augment gains and leverage the potential of this asset class to the maximum. What are they? Let’s find out.
1) Adopt a Long-term Approach
While dabbling in equities, it's prudent to adopt a long-term approach. Equities are volatile in the short-term, and the quantum of volatility rises manifold when you approach this asset class with a short-term view.
However, volatility is mitigated to a great extent when you have a long-term perspective and are willing to stay invested for at least 8 to 10 years. A long-term outlook helps you gain from the market rally that often comes in small bursts and enhances your riches.
2) Avoid Timing the Market
An old adage says 'time in the market is more important than timing the market'. Indeed! To make the most of your equity investment, you need to spend more time in the market than timing it. This is because even the most seasoned investor can’t predict when markets will rise and fall.
Therefore, it’s in your interest to avoid timing the market and ensure you are in for the long haul. This will allow you to capture upsides better and navigate volatility with ease.
3) Invest in a Staggered Manner
When markets look overheated amidst a bull run, like they appear now, it's better to invest in a staggered manner rather than lump sum. This will help you better contain losses should markets nosedive or witness a short-term correction. Also, it’s always better to test waters before jumping.
Thus, it’s advisable to invest in small amounts through systematic investment plans in mutual funds and continue doing so. With SIPs, you can accumulate more units when markets are down, and it averages the cost of buying with time. They also instill a disciplined savings habit, essential for long-term wealth creation.
4) Diversify Your Investments
It's prudent not to put all eggs in one basket, and even in the case of equities, it’s essential to diversify. You can easily do so by investing in large, mid, and small-cap funds. While large-cap funds provide stability to your portfolio, mid and small-cap can bolster returns. Equally essential is to diversify across industries and segments.
Optimum diversification balances the risk and reward equation. A prudent way to diversify in equities is by investing in mutual funds. The mutual fund universe is vast and helps you achieve the desired levels of diversification essential to protect gains and augment wealth simultaneously.
5) Avoid Herd Mentality
When it comes to investments, herd mentality can be detrimental to wealth creation, particularly in equities. Often there have been instances where many investors have chased stocks and funds without robust fundamentals and track record for the sake of high returns. Many financial instruments that promise to give higher returns than equities are unregulated, and their rules are ambiguous.
However, more often than not, you tend to invest in them just because your peers and other investors are doing so. You must refrain from it and ensure investments align with your goals.
6) Don't Fret at Short-term Volatility
Equities test your patience, and short-term volatility shouldn't unnerve you. As said, equities is a long-term game, and you must avoid knee-jerk reactions following short-term blips. Fretting at the hint of the slightest volatility can throw things haywire and blow away years of hard work within no time.
Look at the big picture and keep invested. Those who remained committed to their investments when markets nosedived in March 2020 are now sitting on meaty gains vis-a-vis those who exited.
7) Invest in Fundamentally Robust Stocks/Funds
Investing in funds/stocks that are fundamentally robust can not only see you through when the going gets tough but also prove to be the eventual winners in the long run. On the other hand, those with weak fundamentals may yield the desired returns in the short-term, but they fizz out eventually.
Irrespective of whether you are investing in stocks or mutual funds, make sure the fundamentals are strong. The companies that the fund/stock is investing in should have robust corporate governance model and strong balance sheet with a progressive outlook.
8) Be Patient
It takes time for equity investment to yield the desired returns. As said, if you stay invested for the long haul, don’t fret at short-term volatility, and make fundamentally sound investments, results will follow eventually. However, you need to be patient and continue with your investments blocking market noises.
9) Review Your Portfolio Once in a While
Equally essential is to review your portfolio once in a while and weed out laggards that haven’t performed well for a long time. However, before doing so, understand the real cause of underperformance and make drastic changes after due diligence.
A regular review of your portfolio will help you understand whether your investments align with your goals or not and if you need to plug any gaps.
Conclusion
Investing in equities can help you gain inflation-indexed returns in the long term. So, this Navratri ace the equity game with these nine hacks and bolster your wealth significantly. Wishing you all a very Happy Navratri.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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