New investors are often faced with a dilemma of what type of assets to add to their portfolios. Many of these investors favor safer investment options that guarantee returns and place a low priority on equities and equity-oriented investments. Limited knowledge of markets and family conditioning to opt for traditional investment avenues are the main reasons for reluctance.
However, with the rising cost of living, one cannot rely solely on fixed income instruments. To achieve their financial aspirations and goals, new investors must focus on investing to generate inflation-beating returns for long-term wealth creation. Stocks are the only asset class that offers investors the opportunity to earn returns above inflation and build a financially secure future.
Invest in stocks
Equity is an ideal investment for beginner investors. When you invest in the shares of a company, you hold an interest in its activity and become a partner in its growth. With some research, you can make the right stock investment choices that will help you.
Returns that beat inflation
Safer investment options offer limited returns. But to achieve some of life’s most important goals, like sending your kids to the best colleges or building up a sizable retirement fund, you need to pursue the strategy of building wealth. Although they carry some risk, stock markets have a higher potential to generate returns above inflation over the long term.
Stock markets have outperformed long-term inflation. With inflation around 7%, a long-term return of around 16% on equities allows you to maintain your lifestyle undisturbed by inflation.
As the Indian economy is poised to grow, companies will also experience growth, thus making their participation the best investment decision. By picking the right stocks and staying invested in the markets for the long term, new investors can overcome market volatility and short-term fluctuations.
Advantages of dialing
Compounding is the interest you receive on the interest. Although there is no fixed interest on equity investments, most companies reallocate their profits back to their business, resulting in better long-term investment returns.
If you take the mutual fund route, you can opt for the growth option, where the fund managers reinvest earnings into the underlying plan. With the growth of operations of the company/invested fund, investors reap the benefits of compounding the invested capital.
Another reason to include stock investments in your portfolio is that stocks, like many other safer investments, can also help you earn extra income through dividends, which are a share of the profits a company pays out. to its shareholders. You can choose specific dividend-paying stocks for your portfolio to take advantage of this benefit.
Equity investments are also very liquid. With millions of transactions taking place daily on the exchanges, it is relatively easy to liquidate your holdings if you need to. This liquidity offers new investors an easy solution if they need to sell their shares for emergency needs.
Other things to keep in mind
If you are a beginner investor willing to enjoy the benefits described above, all you need is a demat account to start your stock investments. However, there are some crucial points that new investors should keep in mind before investing in stocks. Here are some practical tips.
Role of adequate research
Many stock market tips are circulating on social networks and instant messaging applications. With deceptive promises, they make investing in stocks tempting. While it may be tempting to follow their recommendations to earn some quick cash, you could be making a costly mistake.
Markets only work for you when you research and make investment decisions based on your goals rather than hearsay. Invest for the long term in fundamentally sound companies and stay alert to short-term market volatility.
Invest according to your risk appetite
It is crucial to assess your risk appetite before making an investment decision. If your risk profile leans more to the conservative side, you can choose blue-chip or dividend-paying stocks. On the other hand, if you can afford to take risks, you may have room for mid-cap stocks in your portfolio.
Take a long-term approach
For beginners, timing the market can be difficult. A long-term approach eliminates the need to time the stock market. Instead, it increases your time in the market and helps you ride out market volatility. Additionally, by staying invested across different market cycles, you reduce your overall investment risk.
You don’t need a lump sum to invest in stocks
Contrary to popular misconception, you don’t need to save a significant amount of money to enter the markets. Systematic Investment Plans (SIPs) allow you to start your stock investment journey with as little as Rs 500.
Ask for help
As a first-time investor, you may be unfamiliar with many areas of finance in general and the stock market in particular. Fortunately, expert help is just a phone call away. So don’t hesitate to contact a financial planner or investment manager if you need to.
The reasons outlined above, coupled with essential tips for stock investing, may be the push you need as a first-time investor to jump into the markets. Remember that investing in stocks, when done right, can be a game-changer for your financial plan. With the right investment advice and decisions, you can achieve all of your financial goals hassle-free.