Currently, the world is going through Multiple Shock waves of Covid 19, War, Inflation, Quantitative tightening, and initial signs of a Recession. People may argue if it is fair to talk about Investment in Equity Market for beginners or not.
The initial reaction may be to protect yourself and your money; even many might think of selling the whole portfolio and leaving the market for good. But we fail to understand that even in adverse conditions, there are opportunities in the Equity market.
Do you Know? There is a saying that
Those who invest in bear markets reap the benefits in Bull markets. “
This doesn’t mean one has to throw oneself in one go, as you never know a bear market may last for more than one year.
So what should we do? An investor’s journey should be consistent and full of patience and discipline.
Invest it in FD, RD, Bonds, liquid funds, or gold and relax. Use some of it in a volatile market when blood is on the street.
Stay away from thematic funds until you know the sector well and can identify the cycle. You would have never made good returns by SIPing in Pharma during 2014-15 and real estate and infra in 2005-07 as a down cycle followed for several years.
So SIP is not right in all situations.
Stay away from investment advisors who consistently advise SIP in thematic funds for the long term, especially when the sector has reached the cycle’s peak. Deep cyclical sectors, after they peak out, may take even ten years to return.
For example, Infra and Real Estate Cycle peaked during 2006-08. These companies remained down for a decade; only in mid-2021 did they improve.
If a person wants to take a relatively higher risk to get higher returns and is willing to spend at least a few hours per week studying the markets, they may directly invest in stocks.
It is essential to know yourself, your risk-taking appetite, investment style that suits you. Therefore it is better to spend the first few years reading books, doing courses, gathering knowledge, SIPing in Mutual funds, and knowing yourself.
After a few years, one can choose if they want to invest directly in stocks and what kind of stock or in Mutual Funds.
Spending time in the market and going through a cycle provides an investor with the complete picture; till then, mutual fund SIP Sahi hai.
The above conservative methods, systematic approach, and caution should not scare you from equity markets. Accept the reality of equity investing and take advantage of the risk and reward it provides.
Equity investment creates higher returns and makes you rich, but it takes time, patience, correct temperaments, discipline, and a regular source of income to feed the SIP.
(Disclaimer: This article is only for educational purposes and not investment advice. I am not a SEBI registered Financial advisor; please consult your financial advisor before investing in any stocks or mutual funds.)
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Rajiv has worked for more than 15 years with Big 4 and other Multinational companies such as KPMG, EY and C&W in research and consulting role. His educational qualifications include BTech from NIT Nagpur and Masters in Construction Management. Apart from his primary expertise in real estate business, he is passionate about personal finance and stock markets. He is avid reader and researcher who enjoys sharing his learnings in the field of personal finance and capital markets.