This post is part of a 3 part series about Investing fundamentals.
Here are the links the earlier posts. Do read these before going ahead:
Part I: Why should you invest?
Part II: How get higher returns
So, we've concluded that you need to invest to beat inflation, and that you need to use equity as a tool to get higher returns over the long term. Now you're at the last stage, choosing the right Equity options.
Investing in equities can be a great way to grow your wealth over the long term, but it can also be overwhelming if you're just starting out. In this blog post, we'll answer some common questions about investing in equity and how to get that coveted 15% CAGR over the long term.
Lets start with the basics:
How do I start?
There are some great options to begin investing.
Actively managed Mutual funds: Mutual funds are a popular way to invest in Indian equities. A mutual fund is a professionally managed investment fund that pools money from multiple investors to purchase stocks, bonds, or other securities.
Exchange-traded funds (ETFs): ETFs are similar to mutual funds but trade like stocks on an exchange. They offer investors exposure to a diversified portfolio of Indian equities.
Index funds: Index funds are mutual funds or ETFs that track a specific stock market index, such as the Nifty 50 or BSE Sensex. They offer investors a low-cost way to gain exposure to the broader Indian equity market.
Direct stock investing: This is more of an advanced option, as it is riskier. You can purchase shares in the open market for a single company.
I've heard that direct stocks are better than Mutual Funds, but I dont have the time to research. Are mutual funds okay?
Mutual funds can be a great way to invest in equity without having to pick individual stocks. And they offer advantages over direct stocks too.
By investing in a mutual fund, you can gain exposure to a diversified portfolio of equities, which can help reduce your risk.
Only downside is that you returns may be slightly lower, but its better to have the peace of mind, right?
Can I simply buy index funds or Exchange-traded funds and forget about it?
Index funds and Exchange-traded funds (ETFs) are great options for investors who want to invest in equities but don't want to worry about picking individual stocks or paying high fees. Index funds track a specific market index, such as the S&P 500, while ETFs are similar to mutual funds but trade like stocks on an exchange. By investing in index funds or ETFs, you can gain exposure to a broad range of equities and benefit from the overall growth of the market.
However, it's important to remember that no investment is completely hands-off, and it's always a good idea to monitor your portfolio and make adjustments as needed.
How to get that coveted 15% CAGR over the long term? Some tips and tricks?
Sorry to disappoint you with the title, but there is no shortcut or guarantee. It's only something that is sustainable over a long term.
And while a 15% compound annual growth rate (CAGR) is an ambitious goal, it's not impossible to achieve. Here are some basic tenets of investing which will keep you growing:
Start early: The earlier you start investing, the more time your investments have to grow. Even small contributions can add up over time, thanks to the power of compounding.
Be consistent: Investing regularly, whether it's monthly or quarterly, can help you take advantage of market fluctuations and benefit from dollar-cost averaging.
Diversify: Investing in a diversified portfolio of equities can help reduce your risk and increase your potential for long-term growth.
Keep fees low: High fees can eat into your returns, so be sure to choose low-cost investments, such as index funds or ETFs.
Stay disciplined: Don't let short-term market fluctuations or FOMO (fear of missing out) tempt you into making impulsive investment decisions. Stick to your investment plan and stay disciplined for the long haul.
In conclusion, investing in equities can be a great way to build wealth over the long term. Whether you choose to invest in individual stocks, mutual funds, index funds, or ETFs, it's important to remember that diversification, consistency, and discipline are key to achieving your long-term investment goals.
