As we learnt that there are different assets to invest in what we have seen that Equity has been the highest return provider for the long term. It has beaten all other consistently if we consider a period of five years or more. If we check the statistics Sensex has given us a compounded annual growth rate of 18 % since 1992. It means 1 lac invested in 1992 has increased to 87 lacs in last 27 years. Whereas other investments like fixed deposits would have turned your 1 lac into just 6 lacs in last 27 years and gold would have made you richer by just 16 lacs.

So what makes it the best asset class than the rest? Other than returns, it is the consistency with which it has given us returns. Of course there are other options like bitcoin and venture funding. But as we have seen that bitcoin rally has ended with loss of permanent capital for so many new and first time investors who got carried away with the promise of something unproven. Then there is venture funds but it requires very high investment threshold that common investors cannot afford it even as the odds of winning here are very low.

So along with consistency and high returns it still makes a better choice of investment than most other assets available. But it also comes with its set of risks. One of the major risks in stock market is price Risk. It means the share price can move up or down depending on the news flow and performance of the company. Since the share price is a representation of future hope from the business, it is affected by many news and events. And stock prices are also very volatile, which can lead to huge losses if not managed well.

The first characteristic that an ideal equity investor has is an ability and willingness to take risk. Without risk tolerance in at least moderate levels, equity investment cannot be made or held successfully. Thus the concept that says risk-averse investors should opt for fixed returns investments instead of an equity investment such as an equity mutual fund. The next important characteristic is an ability to stay invested for the long term. Novice investors tend to panic easily and the volatile nature of equity investments can lead to substantial swings in value of equity investments over the short term. This short term volatility does even out in due course but that can happen only if the investor stays invested in the long term ideally five years or more. These two are probably the most important features that an equity investor should possess but having understanding of how markets work and help from a good financial advisor can definitely improve chances of making a successful investment.