As the equity markets rise, discussions about timing the market or missed opportunities crop up

Why beginners should avoid risky equity investments

As the equity markets rise, discussions about timing the market or missed opportunities crop up. Ritu Mathur, a doctor with limited knowledge of equities, is getting tempted to increase her market exposure, influenced as she is by media hype. She wants to know if she should increase her equity investment?

Ritu Mathur should understand that for a new and relatively uninformed investor, trying to time the market is a risky strategy. She may feel disheartened if the market’s rise is shortlived and is followed by a downturn. Searching for experts on digital media to tell her when to exit is unlikely to yield any useful result.

A bull run in equities typically has several phases. Initially, the market rises as the economy strengthens and company profits are expected to grow. Early investors spot this trend and benefit. As the market continues to rise, more investors gain confidence and, eventually, retail investors, often uninformed, enter the market. It’s difficult to pinpoint the exact stage that the market is in or how long it will stay there.

Mathur’s investment decisions should be based on her personal financial goals. If she has a stable income and is seeking long-term growth, equity investments can help build wealth over time. Instead of attempting to time the market, she should invest systematically. She must avoid investing in smallcap stocks based on hearsay, especially during market booms, as these can be highly volatile and risky. These are better suited to seasoned investors.

As a beginner, Mathur should focus on good-quality large-cap stocks or large-cap equity funds, which are less risky and have stable business models. A common mistake made by beginners is investing heavily in stocks that have already surged. So Mathur must resist the urge to join the rush and, instead, adopt a disciplined, long-term approach when it comes to investing.

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Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances