We all know Equity has the potential to provide the highest return followed by Real Estate. However, it is also observed that 90% of investors do not get much benefit as compared with other asset classes for example Real Estate, Gold, Insurance, Bonds, etc.
There are mainly 3 reasons for getting poor returns from Equity.
- Behaviour Finance: Investor perception changes when investing in Equity vs other asset classes. Investors remain invested in other asset classes even if they make losses in the short to medium term, but in the case of equity, they exit in panic. For example, they will never exit from Gold or Real Estate in loss even if they have to hold for 10 - 20 years and they hold it without losing their patience. On the other hand, Equity is a unique asset class where people are more comfortable buying at high and selling at low. Equity says if you don't accept me at my worst, you don't deserve me at my best.
- Volatile Asset: Equity falls under the highest volatile asset class. The problem is that investors look at the valuation of Equity on a daily / weekly basis. Being a volatile asset, the portfolio value fluctuates on daily basis. Whereas in the case of real estate or insurance, you hardly know the valuation on a month to month basis. Because you see portfolio frequently, you fear of losing deployed amount in case of correction or early exit in case of rally or try to time the market and start trading in equity without acquiring requisite qualification to do so. Investors' decisions not always rational.
- Profit machine for speculation: We consider Equity for overnight profit generation tool. Equity is recommended for long-term wealth creation and as pointed out earlier, Equity generates the highest return among all other asset classes, however, investors do not hold till the long term and they fail to get the actual benefit associated with Equity.
The market generates the return, unfortunately, most of the people failed to enchase it and do not enjoy the fruits of Equity.
Disclaimer: Investment in securities & mutual funds are subject to Market Risk
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