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Investing in stocks in like driving car. In the beginning, no one is an expert in driving. You have to learn how to drive. If you skip the learning and get behind the steering wheel on the very first day, what would be the consequence? There is a decent chance that you would get into an accident. Similarity, with no proper knowledge, you are bound to lose money in the stock market. You might earn money occasionally, but that would be from luck. To earn consistently, you must have in depth knowledge in the subject. To avoid an accident, an experienced drive needs to drive carefully. Similarly, seasoned investors should also remain cautious about his investment decisions to avoid loss. You chances of an accident can be minimized if you follow driving rules, likewise by following certain disciplines you can minimize chances of losing money in the stock market. Driving does not required any formal education degree. Similarly, an MBA in finance, CPA or a similar degree cannot ensure success in equity investing, irrespective of educational background and specialization. Anyone can learn the tactics of successful investing. It is simple, but not easy. Simple in the sense that it does not require high intellectual. Not easy because it requires years long practice, discipline, dedication and willingness to learn.
Avoiding equating investment means you are unlikely to neat inflation. Banks offer negative or flat return. Very few investment options, like real estate and equities, can offer above inflation return. Over the last few decades across the globe and among all asset classes, equities have outperformed other investment options in the long run. So, is not zero exposure to equities a sheer negligence? Are you not taking a big risk by aiding equity investment?
Historically, it has been proven that only the stock market and real estate investment can offer an above inflation return in the long run. Real estate requires big ticket investment, thus this market is not accessible for small investors. For salaries individuals and other professionals the stock market is the only way for wealth creation. Among real estate and the stock market, the latter should be the preferred choice for every individual due to the following reasons.
You can start investing in equities with an amount as low as 5000 dollars. However, in real estate you cannot invest with such a tiny amount. For any retail investor, equity investment is much more convenient.
The stock market is highly regulate. Thus, price discovery is much more transparent. Market regulator has taken several steps to safeguard the interest of small investor. However, in real estate, price discovery itself is not so transparent.
Equity investing offers higher liquidity than real estate. You can purchase stock anytime and also sell them moment after buying. There is no on obligation. You can sell them after 1 minute, 1 month, 1 year or 10 years, whenever you want. However, in real estate, you cannot purchase land to sell it the very next day.
You can buy and sell stocks from anywhere in the world. With the advent of online trading, physical presence is not necessary. Buying and selling can be done with just a click of mouse. However, the same cannot be said about investment in real estate.
Because of many such advantages and inflation return, equities must be a part of everyone’s portfolio. Avoiding equity investment means our retirement life is at risk.
Investment are satisfied with 3% to 4% interest from the bank money market, but not happy with 20% annualized return from the stock market. During the bull market, you may earn much more than 20% to 30%, but that is not permanent and can be repeated year after year. Over 15 to 25 years, if your average annualized return remains within 20% to 30%, then you can easily achieve financial freedom. Always remember that the world’s most successful billionaire investor and also one the world’s second richest person, Warren Buffett made his fortune form just 22% annualized return over 50+ years. On the contrary, many amateur investors desire a 30% to 50% monthly return when they jump into the stock market, end up with a loss and blame the market itself. Sometimes they even mention that equity is another form of gambling and advise others not to invest in stocks.
