Lord Ganesh is the epitome of prosperity rooted in prudence. He is popularly known as Vighnaharta, which means the divine dispeller of hurdles and hindrances. The word Chaturthi means the auspicious fourth day of the Bhadrapada month. In spiritual terms, it implies the fourth and ultimate state of bliss and enlightenment, which is the goal of every sincere seeker.
So this Ganesh Chaturthi, in line with the mystical significance of number four, we debunk four common myths and their associated misconceptions to help you pave the way for making the most of your equity investments.
Myth One: Equity investments are all about luck
It is elementary to put equity in perspective to know why investing in them is not a gamble based on luck. Equities, or stocks as they are popularly known, are not tangible commodities. They represents your part ownership in companies that wors towards their stated objectives of growth and profitability. The choice of stocks for investment decides the course of the investments. This choice is not a gamble as it is not a blind bet on the likelihood of an event without any value creation whatsoever. Stocks create long-term wealth based on the growth of the listed companies which strengthen the economy as a whole.
You may get lucky with stocks at times, but that does not mean stock investments are a function of luck. In fact, they are art and science combined, calling for skills, knowledge and experience that get better over time. Prudent stock selection necessitates every investor to put equity and debt in proper perspective, linking both asset classes to financial needs and targets before exploiting their intrinsic virtues in a judicious blend.
Myth Two: Equity investments are extremely risky
Yes, there is an element of risk inherent in equity investments given that there is no guarantee of returns. Having said that, one must understand the difference between risk and volatility. Risk denotes the uncertainty of investment returns emanating from a host of factors including interest rate fluctuations, political uncertainty, credit risk, inflation, liquidity crisis and the like. Volatility, on the other hand, denotes the variations in investment value over time. This variation is not a risk if your equity investment is fundamentally strong.
Fundamental strength implies the inherent robustness of the company that the stock represents. It can be ascertained in terms of broad parameters like professional management, renowned brand, profitable products or services, prudent business practices, zero or low debt levels, strong cash flows, high resilience during economic downturns, and the like. However, the price variations of companies facing sticky challenges like high debt, fading demand, unprofessional management is indeed be a cause for concern. It is advisable to steer clear of investments in such risky propositions.
Equity investments help you build substantial wealth over time while fixed-income investments ensure stability and capital protection. The key is to balance risk and return in a judicious manner that ensures stability as well as growth. Hence an investor must build a wholesome portfolio of fixed income instruments like bank and corporate fixed deposits and bonds, as also equity investments like stocks and mutual funds.
Myth Three: Equity investments are not for common investors
At any point in time, the stock market is flush with the big monies of several bigwigs at stake. This dictum gives a false impression that small investors can’t make it big in stock investments. Led by this misconception, many newbies tend to chase the prospect of a bumper gain in needless desperation.
They make the cardinal error of being price-fixated. They buy stocks which are hovering near their 52-week lows or take a fatal fancy for penny stocks and junk stocks. Price is not an absolute factor; there are many high-valued scrips that continue to see a good run even at record highs, and there are many good stocks that see a correction at some point which does not mean their intrinsic value has eroded.
One can start small and yet grow big, thanks to the power of compounding that beats inflation to build wealth. It is pertinent to note that you earn returns in two modes: one, by way of appreciation in the price of stock which can fetch capital gains if sold off, and two, by way of dividends declared out of profits besides additional share allotments by virtue of rights issue or bonus declarations.
A Systematic Investment Plan in a good mutual fund allows you to invest very little amounts on monthly basis. Besides you get the advantage of rupee cost averaging. When markets are on a high, you get less units and vice versa. More importantly, the compounding effect helps you build a neat pile which multiplies as your stakes get higher.
Myth Four: Equity investments are all about timing
Markets have an uncanny knack of catching you by surprise. Just when you assume all is hunky dory, a correction can come through. Conversely, a boom may happen even amid gloom like it did during the pandemic times. Trying to time the market is futile unless you are a seasoned trader. Worse, it can even turn fatal for a common investor. Hence, it is important to seek the help of a professional advisor to define your life goals to arrive at your investment goals. In line with current financial situation and risk appetite, the advisor can help you with disciplined and diversified investing in line with your respective income profiles and risk appetites, making the most of market cycles and growth opportunities.
Financial ignorance leads one to a vicious cycle of financial doom. Inadequate knowledge leads to indiscipline which makes one vulnerable to monetary losses and mounting debt, as also the lure of quick money promised by unscrupulous market players. In the long run, your investment into equities will earn you substantial returns, which is why you should begin investing as early as possible.
No better time than Ganesh Chaturthi to embark on this fulfilling voyage. Happy investing!
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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