The whole narrative of stock markets in India is a bit skewed. Only a handful of investors choose stocks to build long-term wealth. Roughly 87% of Indians don't invest in stocks and mutual funds at all.
The crazy part is that 25% of these people can take on some risk but still avoid it. This shows a widespread distrust in stocks, often leading people to rely on alternatives like fixed deposits, endowment plans, or simply letting their money sit idle in savings accounts.
Why? The reason is simple: fear. There's a huge fear of making mistakes, losing money, and not knowing where to start. But the truth is that avoiding the stock market may be doing you more harm than good. So, if you've been holding back from investing in stocks because of fear or confusion, it's time to find a solution.
You may think that choosing an FD, an endowment plan, or just keeping your money idle in a bank's savings account is "safer" than stock market investing. But in reality, these "safe" alternatives could cost you money. That's because endowment plans & FDs (traditional investments) offer returns of only 4-6% per year.
Now, imagine you invest ₹5 lakh for 10 years in one of these plans. After 10 years, your ₹5 lakh would have grown to ₹7.6 lakh. That's not bad, right? But if you consider inflation, which eats into your returns every year, the real value of the investment will be as low as ₹4.1 lakh. To sum up, your investment of 5 lakh would have lost ₹90,000 due to inflation.
On the other hand, if you had invested your ₹5 lakh in stocks (equities) for the same 10 years, you could have turned it into ₹18.5 lakh. And after factoring in inflation, you would have gained 10 lakh.
This shows that stocks have the potential to build real wealth, especially over long periods. The problem, though, is that most people don't hold stocks long enough to see these kinds of results.
About 97% of investors hold onto their stocks for less than 5 years. This short-term approach makes it almost impossible to beat the market. And here's another big problem: 68% of investors panic and sell their stocks when the market drops.
If stocks are such a good option for growing wealth, why do so many Indians still avoid them, especially from a long-haul mindset?
1. They can’t pick good stocks: One major reason people avoid the stock market is that they don't know how to pick good stocks. With over 5,000 companies listed on the Indian stock exchanges, it can feel like an overwhelming task to choose the right one. You might ask yourself, “How do I pick the best stock out of so many?”
It's understandable. There's so much information out there, and it's easy to get lost in all of it. This overload makes it difficult for many people to make a decision and invest confidently.
On top of that, people often don't know how to filter useful information from the noise. Some blindly trust news articles, expert opinions, or social media tips. But here’s the thing— not all stocks are good!
Having professional analysts pick and track stocks for you can be helpful, especially for those engaged in other professions.
2. No time to track stocks: Even if you manage to pick a stock and invest, you may not have the time or energy to track your stocks and pick new stocks regularly. It's easy to forget about your investments, especially if the stock market is volatile. Without regular monitoring, you might miss important updates or changes in the market that could affect your portfolio.
India has 1,312 investment advisors, 855 research analysts and 401 portfolio managers as of 2022-23. That’s just about 2,568 professionals who can research stocks day in and day out. However, crores of Indians want to invest in stocks but lack time as they’re engaged in other professions.
For most other people, their busy schedules leave little time to track the performance of their investments. The problem with this is that by not checking in, you might miss opportunities to sell or buy stocks at the right time.
3. They want to make easy money: It's human nature to want to make money quickly. And this makes the stock market seem like a gold mine. However, even though stocks can be a great way to make money, it is not in the way people often think. The desire to get rich quickly leads many to follow social media tips or listen to stock "gurus" who promise easy profits.
Many people fall prey to scams or manipulations, hoping to make fast money. They might buy into "hot" stocks at the wrong time and lose a lot of money. What's worse, they might panic and sell their stocks during market downturns, which leads to even greater losses. This behaviour is called panic selling, and it's one of the biggest mistakes investors make.
At the end of the day, the big money isn't about making quick bucks; it's about investing for the long term. So, if you're constantly looking for the next "get-rich-quick thing", you'll most likely end up losing money in the long run.
Don’t you think you've been avoiding stocks because of the reasons mentioned above: fear, confusion, or lack of time? If this is the case seek the help of a financial professional. India has 1,312 investment advisors, 855 research analysts, and 401 portfolio managers as of 2022-23. They research stocks and hence can provide you right advice that suits your situation.
Ultimately, avoiding the stock market means missing out on one of the most effective ways to build wealth.
(By arrangement with livemint.com)
