Risk of not investing in Equity.

Rajeev and Sanjay are classmates. They both had same level of knowledge and smartness when they completed their graduation. Rajeev hates to take the risk of traveling in a vehicle for the reasons only best known to him. Believe me; he travels only by walk wherever he goes. But Sanjay is ready to take risk. He uses all the mode of transports time to time convenient to him.

After 10 years of their graduation, they connected to each other on facebook only to know that they both are working for the same company. Rajeev is working as an accounts executive in Chennai branch. Sanjay is working as a Director-Finance in Mumbai, the head quarters of the company.

What made this huge difference? The ability and willingness to take risk.

Similarly investors should not hesitate to take risk. The ability and willingness to take risk by investing in equity will potentially increase your wealth considerably.

A person who is investing Rs.5000 per month for 25 years in safe avenues like FD or PPF will get around Rs.47 lacs; whereas if it is invested in equity it has got a potential to grow to Rs.1.64 crores. Huge difference! Isn’t it?

There are two types of risks. One is blind risk. It is something like driving a vehicle without knowing how to drive and driving without understanding the road rules. The other one is calculated risk where we know how to drive as well as the road rules.

An investor needs to take well calculated risks; not blind risks. One should know how to invest as well as the investment principles and techniques.

Suppose you don’t know how to do that and also don’t have enough time to learn those things, it is better to outsource it to someone who knows investing better. Mutual funds and Portfolio management services will serve this purpose for you.

Investing in equity is a risky proposition. At the same time staying away from equity is also a risky proposition, because inflation is like a slow poison, which will eat away the value of money over a period of time. That is if inflation is 6%, your investment should give at least 6% post tax return to maintain the same money value for your investment. If it is giving less that 6%, then your money value is eroding. If it is giving more than 6% then your investment is really growing. Equity is one such investment which has got a potential to beat inflation in the long term.

Don’t hesitate to invest in equities. Beat inflation and accumulate real wealth

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in