American Stock Market, US Stock Market, American Share Market

Why and When to invest in Equity?

As compared to investing in FDS/Bonds or in any other schemes, investing in equities protect and develop the wealth significantly. We shall try to address why to invest in equity? When to invest? Moreover we will discuss about the debts and study how they disturb the plans of equity investment.

We often find that farmer borrow high amount of money from their zamindars so that he can pay dowry during her daughter’s marriage, the debt taken will results him to a laborer of that zamindar. An individual purchases TV, fridge, car etc on his credit card. But he doesn’t know it is another form of debt which he plans to give back from his salary.

Moral:

Above cases shows that debt has been made beyond one’s earning. Normally, whatever we earn either goes into buying our basic necessities or save with an intention to buy the same during our retirement. We spend our earnings today or save it to spend it later. Debt is the element; while we postpone consumption when we save, we spend future savings when we borrow! In simpler terms, savings and debt are like day & night. They rarely exist together.

Let’s take another example Naresh who is very practical man; learned from his ups and downs of his life. As usual he also has desires to have a car, A/c., TV etc but his earning capacity was not so high. He fulfills his ambitions, he started to save regularly and invest a part of it in shares of good company. He bought a car month ago from selling the part of his investment in shares.

He has his colleague Naresh, he lives his life king size. He surpassed his credit card limits for which he is paying back at 3% interest per month. Two years back he took a loan to purchase a car at Rs 8000 per month as installment out of his Rs. 14000 salary. A year ago, he also decided to start experimenting on shares. He followed the instruction of his broker blindly and purchases the stock of Rs 150. After a week he found his stock decreased up to 35%. He shocked and asks his broker why the stock got freeze. At this point of time, his interest meter was growing on his borrowings while his principal was down the tube.

Moral: Never stretch borrowings to invest in the stock market. Ideally, one should repay all borrowings and then invest the surplus in equities. Shares are long-term investments that cannot be matched with short-term borrowings. So, when we are debt free, we are ready to invest in equities!

Hence, in the long run equities offer the highest returns. We have also learnt that one can invest in equities any time provided one has surpluses after repaying debt and meeting one expenditure!

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