I always wonder whether its the dynamic nature of Equity Markets or the high returns that has attracted me towards this asset class. But when I dig a little deep I find that its actually both (frankly with a slight bias towards the nature). Having entered this personal finance profession(mid 2007) at the cusp of a recession, I can proudly say I am grateful enough to experience a complete cycle of equity market movement. Having said that, I also wonder about, how many investors benefited from this complete cycle. And the the only number that comes to my mind is, a very minuscule one - not more than 5% of Indian investors.
But why??
Is it the volatility of equity markets, the fear of loosing your hard earned money, or is it the Fear of Sensex Figure aka FSF (right now its 27000) that is keeping you away. While I have already covered the first two aspects of this question in my earlier blogs, I would like spend some time on (this stupid) FSF.
Timing the market
FSF is nothing but greed of timing the market. Back in September 2013, when everyone was bearish about the economy and the equity markets, did you ever think that the stock markets would zoom over the next nine months and that equity funds would deliver a 50 per cent-plus return? No, right. Nobody can say for sure when the next correction will come about, so that you can start your investments. Instead if you had simply started investing a small amount (via mutual funds) you would have generated returns in excess of 12%.
Converesely:
What this same FSF could also do to you is, as and when your financial goals are near it will deter you from withdrawing or shifting your Equity investments to a safer (debt) asset class if the markets are inching upwards, as greed would have overpowered your consciousnesses about financial goals and you will have made a strong attachment towards this high return instrument.
In fact, behavioral finance tells us that investors are emotionally wired to act at exactly the wrong times. Although the dynamic nature of Equity Markets makes it important for a investor to dedicate a lot of time towards research of individual stocks, thanks to Mutual funds this is not mandatory. We already have a good set of consistently performing mutual funds which you can choose and start your investments systematically without FSF.
For the first time I am sharing an example of my personal investments with you. I have purposely deleted the names of the funds as I feel that's the least important(for now). Its the time(no of days) that I would like to point out that my investments have spent in the market. In the first investment which is an SIP I made it a point to continue investing through the bad times as well as the good ones, whereas the second one was a gift by my father and I am still proudly holding it.
When I look at people still investing in boring traditional investments, I have mixed feelings of sadness & despair. Why do investors lack interest in Equities, rather what is so interesting about Fixed deposits/Real Estate/Gold that people flock to it. History is a great teacher, they say, and I hope it teaches us to make better decisions when it comes to our personal investments.
Ninad Kamat
CERTIFIED FINANCIAL PLANNERCM
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