InvestorQ : What is the right frame of investing in the stock market and the power of passive mutual funds?
Priyanka Singh made post

What is the right frame of investing in the stock market and the power of passive mutual funds?

tanvi Patel answered.
1 year ago
Let me attempt to answer this question from a different angle. Let us look at choices that will definitely NOT be rewarded by the stock markets. That way, you know what steps NOT to take if you want to be successful in the market. Stock investing by many is driven to a very large extent by emotions, which makes them take irrational decisions which go on to impact market dynamics. For the typical investor, decisions are made at a gut level rather than a rational level.

A classic example of this is herd mentality. The best time to buy a stock is when everyone is selling and vice-versa. But that does not happen in most cases, does it? Investors go through lots of different emotions when putting their money into the stock market. An investor is always hopeful their capital will increase in value. You would not make an investment if you thought it would lose money. But hope can also mean staying in a losing trade in the belief it will recover. If an investor is really serious about their investments, they must try very hard to set emotions aside and rely on cold calculation and logic to guide them. This is not easy to do. This is what makes equities a difficult market to crack.

According to my, “time in the market” is more important than “timing the market”. The thing is, investing in stock markets should not be a short-term phenomenon, especially for a beginner. Stocks are investment instruments that can only be truly appreciated when you look at them from a long-term perspective. If you look at anything on a daily or monthly or even yearly basis, it is bound to be volatile.

Volatility is the nature of equity markets. But as your lens turns to a 5-yr and above perspective, the volatility seems a bit less sharp and losses tend to be capped. Entry points are important and the timing of those are also in some sense crucial, but that is not a sure-shot way of achieving success. So, the simpler and in many, a sense better way to approach investing in stocks is to take out time to do your own homework and build knowledge about the investment.

Equity investing takes advantage of the power of compounding and cost averaging, which grows your wealth exponentially. Stock markets will always be volatile, that’s the nature of the beast. Don’t get rattled by daily ups and downs and always look at the big picture.