Equity investing is often considered risky because of the high volatility in the stock market, triggered by many factors like government policies, high inflation, economic slowdown, domestic political unrest, and geopolitical tensions, among others. Equity investing becomes riskier even more if you have passed 60 as you may have little or no recourse to replenish your retirement corpus fund at that age if you lose that money in the gamble.

However, equity investing is not completely off limits if you know to play it safe as per your risk-taking capacity. You may determine the amount you are comfortable with investing in the stock market while ensuring your investment portfolio is well-diversified to absorb the shocks.

When it comes to equity investing, many investors grapple with issues like asset allocation, sector selection, diversification, time horizon, etc. It is important to consider these aspects, as any blunder in the process could derail your long-term financial plans.

Asset Allocation

Says Saurav Sultania, vice president for Equity Product Group at ICICI Direct, “Investors should not go overboard on one asset class; they should keep asset allocation in check, considering the risk appetite and time horizon they are comfortable with.” He stresses investing in multiple asset classes like gold, stocks, bonds, mutual funds (MFs), and fixed deposits (FDs) as part of their portfolio to minimise risk by not relying heavily on a particular asset or sector.

Sector and Stock Selection

Furthermore, the selection of sectors and stocks is critical to investing in the stock market. Sultania emphasises that investors should identify the growth sectors and stay invested in them, regardless of market volatility, to make the most of their investments.

He says, “Once the sector is identified, investors should focus on investing in quality companies with sound fundamentals.” It is essential because, as a growing economy, India will offer ample opportunities for wealth creation, provided investors stay invested for the long term.

Investing Horizon

Another factor critical to equity investing is determining the time horizon as per your need. For instance, investors must know which stocks to hold for the short, medium or long term within the selected assets.

Diversify Investment Portfolio

Diversification also plays a critical role in the success of an investment portfolio. Says Sultania, “Investors should keep both sector and stock diversification in check, i.e., not over-allocation on one sector, and within an industry, (or) not going overboard on one stock. This will keep your portfolio in check during volatile times.” Just as asset allocation is vital for an investor, diversification offers a cushion against volatility—the bedrock of a stable investment portfolio.

Plan Capital Allocation

Similarly, a proper capital allocation strategy is critical for a strong portfolio. Sultania explains, “Investors/traders should keep clear bifurcation between investing (lower risk than trading) and trading capital (high risk). Also, from time to time, they can use strategies like averaging or accumulation during downturns via tools like Stock SIP (systematic investment plan).”