The Right Time To Invest In Equities

Investment in the stock market is always vulnerable to market risks. One must study carefully before investing in any company because it can make you a king, as well as a pauper, and you won't be able to control which one you become unless you plan the whole thing correctly.

The stock market can not be seen as gambling. One cannot abruptly jump in and invest without proper knowledge or advise, it requires a lot of study and analysis. In a true sense, investing in a stock is buying a piece of a company. Stocks are a long term investment. You have to stick with the company through volatility (ups and downs). Over time, you’ll get your actual benefit. Therefore the trick is patience and diversification.

What is the best time to invest in equities?

Now let’s discuss the basics. Equity is simply another term for shares and stocks. For example, you bought shares or invested in equity, but both are referring to the same thing. Now once we are on our known turf, let's dive into the actual question.

What is the best time to buy shares?

Some investors, believe they should buy when the market is bulling up like a rocket, using the term, the trend is your friend. Some others, believe the should do it when the market is bearing down, the worse the market at the time of purchase, the more profit you make in the long run.

For experience, the real gain you will see it in the long term. That is why, now, it is the best time to invest. To give you some background and the reason behind it , over the past 140 years, U.S. stocks averaged 9.2%, according to Goldman Sachs. The worst decade was the 1930s, which delivered an average annual return of negative 4%, while the best was the 1950s, which returned 21% a year. In the next decade, investors will likely need to take on more risk to achieve the same returns as over the past decade.

Trying to pick the right time to invest in the equity market, also called Market Timing, most of the times doesn't work, every body wants to buy low and sell high. But thats very difficult to say the least. The rational investor knows there will be short term volatility in the market. What happens in the short term should be inconsequential if you’re investing for the long term.

Where to invest?

First rule, Diversification. As the old proverb says, Don't put all your eggs in one basket, allocating your investments among various industries, sectors and companies, reduce the unsystematic risk, that could happen in a bankruptcy, commodity prices change etc. Basically, the strategy aims to maximize returns by investing in different areas that would each react differently to the same event. For me, the smartest way to invest, is through ETF's (Exchange Traded Funds), a very high diversification instruments and cost effective. From broad markets SPY (standard and poors) to the next Covid vaccine players. Take a look at a tool called Magnify at Lifeinvest Wealth Management, and find the right ETF for you.

Second rule, Do your homework. Remember you are investing not gambling. Study the companies that you would like to buy. A rule of thumb, invest in companies that have products or services that you use and believe are great. In my case from Disney, to Amazon are those companies that I have to have. Then look at the numbers, growth sales, net income, number of clients, etc. Then find your strategy, you like Growth stocks or dividend stocks. If you don't have the time or knowledge, please find an Investment Advisor, he will help you create a strategy according to your risk profile and expectations.

Major factors to ponder while investing

Since we have discussed when and where to invest, let's talk about why. Think about a simple question, would you like to invest in a company just because it has a big market cap? Of course not. Even the biggest companies can shut down if the situation is like that. Every company has its history.

· How they started and how much they have grown?

· What is their present scenario? What are their prospects?

· Who is running the company right now? What are their policies?

These are very crucial question when judging a company. Only after considering all these, you can step into the market to invest in that company. Remember is a long term investment. Know the company you are planning to get involved with. In technical terms, you should always consider the following points before investing:

· Nature and outlook of their business

· Uniqueness in the business model

· Profitability

· Past data on the return on investment ( ROI )

· Valuation of the stock.

You must spend your time researching the companies in whose equity you are going to invest. Invest in equities as if you own the business itself. Only then you will have a great profit.

Look for the "The Next Big Thing", we all saw Netflix, Paypal and Tesla. Who's next? a fintech, a clean energy company or a health revolution enterprise.