You Can Boast About It!
Why You Should Invest in Stocks
1) Diversification:
Indian savers traditionally invest in avenues such as, real estate, gold, bank fixed deposits, Government’s small savings schemes and others.
1) Diversification:
Indian savers traditionally invest in avenues such as, real estate, gold, bank fixed deposits, Government’s small savings schemes and others.
By investing in listed stocks, investors want to diversify their portfolios. Portfolio diversification is considered as desirable.
2) Better returns:
Historically, stocks have provided superior returns to investors over long periods of time. This is true in several developed and developing countries, but not all. Certainly not in all periods of time.
By investing in stocks, savers want to earn higher returns from their investments so that their money will hold purchasing power. Unless your savings generates returns better than inflation, the purchasing power of your savings will not be protected.
Historically, stocks have provided superior returns to investors over long periods of time. This is true in several developed and developing countries, but not all. Certainly not in all periods of time.
By investing in stocks, savers want to earn higher returns from their investments so that their money will hold purchasing power. Unless your savings generates returns better than inflation, the purchasing power of your savings will not be protected.
Equities provide better potential for savers to protect their savings against inflation.
Due to global savings glut, savers have suffered with low interest rates in recent decades. This has forced many savers to try out new and riskier avenues, like, direct stocks and equity mutual funds.
India is no exception. For several years, savers were affected by the low interest rates offered by bank deposits and liquid / debt mutual funds.
Traditional bank fixed deposits typically provide 6 to 8 per cent nominal returns per year in India. But you need to choose reputed and well-managed banks – without being greedy about higher rates offered by questionable players.
On the contrary, stocks cannot provide guaranteed returns though they tend to generate superior returns if you opt for quality stocks and hold them with patience for five years or more.
Indian stock market has provided annualised returns (nominal) of between 13 and 15 per cent in the long term.
Due to global savings glut, savers have suffered with low interest rates in recent decades. This has forced many savers to try out new and riskier avenues, like, direct stocks and equity mutual funds.
India is no exception. For several years, savers were affected by the low interest rates offered by bank deposits and liquid / debt mutual funds.
Traditional bank fixed deposits typically provide 6 to 8 per cent nominal returns per year in India. But you need to choose reputed and well-managed banks – without being greedy about higher rates offered by questionable players.
On the contrary, stocks cannot provide guaranteed returns though they tend to generate superior returns if you opt for quality stocks and hold them with patience for five years or more.
Indian stock market has provided annualised returns (nominal) of between 13 and 15 per cent in the long term.
Stock markets in the US and Europe too have provided inflation-beating returns over long periods of time -- they provided real (inflation-adjusted) returns of 4 to 6 per cent over several decades.
As you know, stock market returns are not linear – in the sense, they are not consistent. They are lumpy and you cannot expect returns from them every year.
As you know, stock market returns are not linear – in the sense, they are not consistent. They are lumpy and you cannot expect returns from them every year.
For two to three years, you may not get any returns or you may lose some part of your money at worst. But in the next one year, you may get returns that would compensate for the previous years' losses.
Of course, there are exceptions -- some countries’ stock markets have failed to generate long term returns. For example, equity investors in Japan, France and Italy have suffered long periods of negative returns.
Of course, there are exceptions -- some countries’ stock markets have failed to generate long term returns. For example, equity investors in Japan, France and Italy have suffered long periods of negative returns.
Japanese stock market is recovering only in the past one year.
Various factors, like, economic depression, war and political troubles have negatively impacted stock market returns in the past in several nations.
3) Human behavior:
You can learn a lot about human behaviour. All kinds of people come to markets, they have different investment objectives and expectations. They can be highly irrational and short term in nature. Most of them cannot show any patience, they tend to hold stocks for extremely short periods of time.
You can also learn about companies and their business models, stock markets and economy.
4) Finally, you can boast about it! 😁
While stock markets offer potential for better returns, they are not suitable for all. People without knowledge of companies and their fundamentals should not invest directly in stock market.
Unless you have a time horizon of five years or more, you should not dabble in stocks. Patience and long-term orientation are a must.
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Related Blogs:
Letter to an Emerging Dabbler 28Jul2021
Know This Before Dabbling in Stocks 02Jan2010
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