Equity- 4 reasons why it outperforms other asset classes in the long run

Equity- 4 reasons why it outperforms other asset classes in the long run
by Nutan Gupta 06/05/2017
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Slow and steady wins the race. We all believed in this until we all saw what fast and furious could do. Wouldn’t you want to drive a Lamborghini instead of a regular sedan? Wouldn’t you want to travel in a speedboat instead of a row boat? Need for speed is the demand of the time. This is because people have increasingly grown impatient. People want results and they want it quick. The same rule applies to their money too. The one dream that almost everyone somewhere cherishes in their heart is to make money in the fastest way possible. The adage that shortcuts are risky is somewhat true when it comes to investing. One such investment avenue perceived as risky is equities.

However, this is not true always. Equity has the potential to outperform other asset classes in the long run. Equities have in fact achieved this tremendous feat in the past on numerous occasions. Let’s look at 4 reasons why it could do so.

Small Investment, Big Gains: By opting for a longer-term investment plan, you are reducing the amount required to attain your financial target. When you plan on buying that luxury sedan that costs an eye-popping 80 lac rupees, your first target is to save up for the initial down-payment and an apt car loan plan. Assuming 40 lac rupees is the initial down-payment, it would require you to invest Rs. 6000 per month to attain your desired goal. Under normal circumstances, the situation is different while with equities wherein an investment of Rs 3000 per month would help you meet your target, under the same time-period.

Capital added is Multiplied: When we talk about returns from equities, one cannot miss the term 'compound interest'. Over the longer time period, your invested amount is compounded annually. What you reap later is capital enough to have leapfrogged your financial target. An investment of Rs 5000 per month at the rate of 18% P.A for the time period of 10 years would yield a handsome Rs15.5 lac.

Ahead of its Time: With fluctuating inflation rates, there isn't much of a margin on return gains while with many asset classes. As compared to these asset classes, returns from equities have always proven to hover much above the average inflation rates in India. An investment in an asset with its interest rate lesser than the inflation rate is a failed investment.

A Step Ahead of its Peers: Comparing it with any kind of investment, equities have historically blessed its investors with greater returns. Anyone who invested in IT firms during the year 2000 surely received better gains as compared to ones who invested in real estate or the ones who expected stabilized returns from fixed deposits.

Your Take

Patience is never discouraged. But it is advisable to make most of the time spent being patient. Necessity is the mother of invention. This need for quick money had paved way for financial trading. Equity is one of the prime attractions for young investors. Equities, despite its risks, has an upper hand over all other asset classes. As discussed, its returns on a longer term are unrivalled. Yet, with changing trends and fluctuating market, one may be tempted to stay away from it. It is advised to have a composed mind to make the most out of the volatile and beneficial nature of equities.