Stocks Are Not Always The Best Things Ever

A common myth in financial advisory circles is that in the long run,stocks outperform equity,so a person should have equity in their portfolio.

So what would your fate have been if you had no equity in your portfolio?Take a look at the graph below.It assumes you invested Rs 5000 in an FD or in the SENSEX in 1992.

Now you know how  much you might have had 20 yrs from then either way.The figures will change,if you consider different start and finish years.But being certain that your capital is safe,that you are assured of some positive returns at least and being able to predict how much you might have  at the end have some value in themselves.and in these years at least you might not have done too badly if you kept off the stock markets.

But if you can pick stocks,there is nothing like it,Individual stocks could have multiplied to lacs of rupees.You will hear these stories from some of the front benchers in various AGMs. And interestingly,if you had invested in UTI MasterShare,India’s oldest diversified equity mutual fund,you might have seen about a two lacs. So a SIP in a middling diversified equity mutual fund is a good compromise.But mind an index fund wouldn’t have helped you so.As we don’t have too many mutual funds in India with such a long history,its hard to say if the category average of diversified equity funds might have come down if there were more data points.Also in case of equity  you will never be able to predict in advance what your holdings worth will be at some time in future,

Stocks are good in their own way if you wish to build wealth.But don’t be pressured into investing in them if you haven’t financially secured all your life goals.