Go long-term with equity

Investing is a life-long endeavour. You need to begin as soon as you earn your first salary or profit and keep at it through life. You need to invest with three basic goals – security, wealth creation and retirement corpus. While insurance covers security, your investment strategy of asset allocation addresses wealth creation. Retirement corpus will be the wealth created and planned retirement benefits such as pension funds.

You need to follow some basic rules to ensure you don’t lose your hard-earned corpus and derive the maximum yield your money can get while investing in equity.

Here are some basics of smart equity investing:

Set sell triggers

Every stock should have a sell trigger – both upwards and downwards. Exit the stock no matter what your outlook may be when it hits a trigger. This discipline will help you mitigate risk and stem loss. Remember, equity investing pays well when you follow the basic thumb rules. An equity investor needs to monitor the portfolio and market movements regularly to exit and buy at the right time.

Go long-term with fundamentals

Equity investing is a long-term strategy. Short-term investing is speculation. Equity works well over the long term. Apply investment fundamentals while buying or exiting from stocks. Don’t let emotions hold sway over your decisions. Holding onto stocks driven by an emotional attachment to the company can lead to loss.

Mutual fund is a safer option

If you don’t have the time to monitor your portfolio and market movements, take the mutual fund route for your equity investments. Mutual funds are managed by professionals and you don’t need to track the investments as closely as direct equity. However, this option too needs a sell trigger.

Market timing is a folly

It is very difficult to predict market waves. In a long-term strategy, you are insulated from short-term troughs. Trying to time the market will invariably lead to buying at peaks and selling at troughs. Rather than trying to time your exit with market movements, buy potential stocks in your portfolio at regular intervals. This is called rupee-cost averaging. This brings down the average stock price over your holding tenure.

Don’t put all eggs in equity basket

Equity investing carries risk. Never put all your corpus into equity. You need a balanced portfolio. Always allocate some funds to liquid options so you can encash in times of need without incurring a loss. Most often, people who incur a heavy loss bet on a single stock and make irrational investment decisions. Equity investing is a long-term strategy and serves you well when you have realistic expectations of returns.

Everyone needs some exposure to equity as this is the most profitable avenue. Wealth creation takes a good amount of allocation to equity and smart investment decisions. Younger investors with a heavier risk appetite need to put a larger part of their corpus into equity and stay invested for the long term.