Invest in Equity

We all have an aspiration to make money. As we all know more the risk more the returns. We see around us that many persons have made money in the stock market. We have also seen many people lose money, but not many say or talk about losses. We know that people lose money and we don’t like taking risks.

What if we do a study and the risk reduces, would you still not invest. If the answer is no, then stop reading further. If your answer is yes, let us see how we can reduce our risks and build a good portfolio. 

First thing to remember, investing in equity should always be with a long term view.

If you are looking at short term and you don’t have a good knowledge of the market stay away. Have a realistic expectation. It is realistic to expect around 15% return, but if you are thinking bigger, go to an expert. One more thing is don’t just think equity; look at other avenues as well.

Equity could form a major part of your portfolio. Usual percentage to invest in equity would be 100 less your current age. This would give you a rough idea of the percentage you should have in equity. The reason is, as you grow older assured returns should increase.

Again the percentage would depend on financial background, earning visibility and stability, family background, etc. Once you have arrived at the percentage, start looking at sectors you would want to invest. Study the economic environment as see which sector would be growing or would give better returns than the market.

Sectors keep changing from time to time; narrow down to 2 or 3 sectors depending on the outlook of the sector. Now within the sectors look at companies. The different ways of narrowing down on companies would be past performance of the stock with respect to market indices, management guideline for the future on business/earnings visibility etc.

You can also perform some basic calculations to build their own opinion on picking the stocks. For example, find the PE (Price to earnings) ratio analysis of a stock and compare it with its own historic PE ratio and the PE ratios of its peers. Keep a lookout for Market tips.

Study the profile and judge the chances of the company share price going up. Here also look at least 2 to 3 companies in each sector. 

Keep an eye on the market development and keep shuffling your portfolio depending on the circumstances.

If you find all this a little time consuming or you feel you might not be able to cope with this pressure for long, invest in good diversified mutual funds. The fund manager would take care on sectors and companies. Look at the track record of the fund manager before investing