The share markets are volatile and risky. The huge fluctuations may be scary for you especially if you are new to stock market investing. It is natural that you would not like to lose money when prices fall. However, you must not make investment decisions based on the short-term fluctuations but instead invest for the longer term.
Staying invested for a longer time is better than trying to time the market. Successful investors do not have any investment secrets to make profits. Stock investing is about comprehending the fundamentals and hard work.
Here are three reasons why you must invest in equity market.
Multiple investment options
You may invest in shares of certain companies or invest in index stocks to make profits. Alternatively, you may invest through equity mutual funds, which is an indirect way to invest in the share markets. You may also invest in the derivatives market, which includes futures and options.
Inflation-beating returns
Compared to most financial products such as government bonds, savings bank account, fixed deposits, insurance, and others, investing in the equity market offers the highest returns, especially in the long-term. If you remain invested for three to five years, there is an excellent opportunity of making inflation-beating returns. This helps you build wealth over the years.
Risk mitigation
Diversification is an important aspect of financial planning. Stock investing is risky and you may never completely mitigate the risks. However, you may invest in companies with different market capitalization or operate in different sectors to mitigate the inherent risk of stock investing.
Using market news correctly
Institutional investors may have an advantage because they receive equity market news through their huge network of professional experts. However, you also have access to this information. Furthermore, you may use several tools and techniques that are easily available online to use this information to your advantage.
An important aspect of investing in stock markets is to have a plan. You must determine the available capital that you have for such investments. Additionally, know your risk appetite and set a financial goal and investment horizon before you commence investing in shares.
It is recommended you start early so your capital has a longer time to grow. If your financial goal is in the distant future such as building a retirement corpus, stock investing may be beneficial. This is because, with a longer investment horizon, you are able to ride out the short-term volatilities to build a huge retirement corpus.
You must never assume too much risk while investing in stocks. You should have realistic goals and use the share market news wisely for maximizing your returns. To ensure you do not lose money, you must book profits once your price target is achieved. Gaining proper understanding before investing is important.