In the past few months, market has had a fantastic bull run. While the wealth generation potential of equities is well-known, only a handful can utilise this asset class to enhance their riches. It hit fresh record high in June.
When the market nosedived in March 2020, several investors panicked and withdrew. However, market recovered at a faster clip than expected and rewarded those who faced the storm with gusto.
Let’s understand how you can make money in this asset class and achieve your goals.
Timing the Market – A Big NO!
Time in the market is more important than timing the market. This is because even the most successful investor can’t predict when markets would go up or come down. The simplest way to make money in equities is to buy low and sell high.
However, nobody can predict when that will happen. Several factors affect market performance, and most of them are beyond the control of investors. So, the aim should be to spend more time in the market, rather than timing it.
If you try timing the market, it could lead to making wrong calls and flawed decisions, thus eroding your wealth.
Choose Fundamentally Strong Stocks:
Whether you are a new investor or a seasoned one, you must invest in stocks of companies that have robust fundamentals. The company must be a leading player in its domain with a strong balance sheet and corporate governance.
You can invest in the top 100 companies by market capitalisation for steady growth. Investing in the stocks of these companies stabilises your portfolio and prevents the gains from eroding when markets turn sour.
Always check the long-term performance of stock and see how well it has performed during the bearish phase.
Keep Your Expectations Realistic
While equities do offer high returns than fixed-income instruments, in the long run, it’s vital to keep your expectations realistic. You can’t expect them to give you returns in high double digits (30 to 35%), even if you stay invested for the long haul.
Note that markets never move in a straight line. They go through cycles where a trough follows a crest. If a stock promises to give you returns that are too good to be true, then it should serve as a red flag. When you keep your expectations realistic, it prevents you from going overboard.
Stay Committed for the Long Haul
Equity investment tests your patience. You need to remain committed to your investment for the long haul to maximise gains.
If you have made a fundamentally sound investment, short-term blips shouldn’t deter you from exiting.
Often during market mayhem, even the most robust stocks go for a toss. However, it’s also the opportunity to buy quality stocks available at attractive valuations. Note that a fundamentally sound stock will always prove to be a winning bet in the long run.
Summing it Up
The right approach coupled with goal-based investment can help you leverage the potential of equities to the maximum. Avoid biases and see the big picture to reap dividends in the long run.
(The author is EVP & Head, Edelweiss Personal Wealth)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.