It’s important to have a steady start when investing in equities for the first time. Many people unknowingly invest in very volatile (risky) stocks and end up losing a portion (or entirety) of their investment. And many of them, never to return to the stock market.
In fact, less than 5% of the Indian population today invests in the stock market. So what keeps many people away from investing in the stock market? Many feel that it’s like gambling or based only on luck, or a game only for the rich. Yet there are others who feel they don’t have enough to invest. Underlying most of these beliefs for many is the risk & fear of losing money – it’s perhaps the most prominent reason why people hesitate to invest.
What is Risk?
Risk – what exactly does it mean? In finance, the most common measure of risk is volatility or standard deviation, i.e. how much a stock/security tends to deviate from its average price. It’s simply a measure of the variation seen in the price of an asset.
Generally, equities are considered to be the riskiest amongst all traditional assets like fixed income (e.g. FDs), real estate, commodities (e.g. gold), and currencies. This is because its price tends to deviate a lot more compared to others. There are many reasons why this happens – the performance of a company, current sentiment, broader economic conditions, etc.
Equities are indeed a riskier asset class – but it’s exactly why it has been also more rewarding in the long-term. Average equity returns (measured by the Nifty-50) over the last 20 years have been far higher than that of other traditional asset classes people invest in, returning ~14.19% on average where Real Estate gave 11.69%, and gold far lower at 8.72%.
The difference between 14% and 11% might not seem a lot – but it really makes a big difference over the long-term. If you had invest ₹1 lakh 20 years ago, then that would’ve grown to approx. ₹14.21 lakhs today with equities, but only ₹9.12 lakhs with real estate and ₹5.32 lakhs with gold!
A ‘Good Start’ for your first investment:
Risk is an integral part of investing, however, it can be managed. To enjoy the benefit of long-term wealth creation without taking undue risks, your first investment in the stock market needs to be in the right set of stocks. Keeping in mind the needs of its customers who are new to investing, Alice Blue has created the “Good Start smallcase“.
The “Alice Blue Good Start smallcase” only invests quality stocks that reduce risk (volatility), thus providing a steadier start for new investors. These include established names from the Nifty-50 universe of large-cap stocks, like SBI Life Insurance, Hero Motocorp, and Infosys.
Diversification across sectors helps further reduce the risks of this smallcase. Moreover, since this smallcase is designed for new participants in the market, it deliberately has 0% exposure to small-cap stocks.
If you are a new investor interested in equity investing, or someone looking to start over, the Alice Blue Good Start smallcase might be ideal for you.
Alice Blue had launched smallcases in March 2019. smallcases are portfolios of stocks/ETFs that have an underlying theme or an established investing strategy. smallcases are inherently diversified, have no additional cost other than the standard brokerage, and prove to be far more cost-efficient than mutual funds in the long-run. Login now with your Aliceblue account to invest in smallcases.