There is a common perception among the retail investors that people tend to lose in equity markets and one should stay away from investing in shares of a listed company.
In real life, if someone tries to drive a car without first learning how to drive a car, then he is likely to meet an accident. In this case, it is not that the accident happened because a car is not a proper vehicle to drive. Everyone is aware of this but when it comes to the stock market, this is not the case. Beginners come to the stock market without taking any professional help and start investing by their own and the result is the same, they lose money. Consequently, they make a perception that the stock market is not the right place for them to make an investment.
Professional help is the key for retail investors to make big money in the stock market. Professionals with adequate qualifications, infrastructure and rich experience in the stock market provide crucial guidance to their clients in their journey of wealth creation.
Expectations of retail investors also need to be very practical and reasonable. One should not expect their money to get multiplied overnight in the stock market. Money does get multiplied in the stock market and that too in a big way. However, to achieve the same, one needs to understand the concept of compounding and thus have a mind-set of long-term investing.
Investment grows to 10 times if 25% return is compounded for 10 years, and 100 times if compounded for 20 years, and eventually 1000 times if compounded at the same rate for 30 years. Thus an investment portfolio of Rs.10 lakhs compounded at 25% can grow to Rs.100 crore in 30 years. This is how the power of compounding works over a period of time.
Retail should be very careful in selecting their professionals and follow their recommendations to create long term sustainable wealth. We at AnandRathi simplify the complex financial world to the retail investors and help them in making informed investment decisions.
Author: Mr.Saurabh Joshi, CA, Manager-Equity Research (Investment Services), 23rd December 2019