Why Equity Shares Are Still the Best LongTerm Investment

In modern times, where investors have numerous investment choices, such as mutual funds, gold, and real estate, equity shares remain the most effective instrument of wealth creation in the long run. Some of the most prosperous investors, such as Warren Buffett, have turned their investments into fortunes by maintaining equity shares over several decades.

So what makes equity shares so effective to use in long-term investment? In this blog, we will explain it in the simplest terms of why adding equity shares to your portfolio is going to be a wise decision for the future.

 

What Are Equity Shares?

Equity stock, or common stock, or ordinary stocks refer to the share in ownership of a company. When you purchase equity stocks, you are a partial owner of that firm. This means that you own a share in its profits, typically via a capital gain and possibly dividends.

The value of equity shares can increase or decrease over time in accordance with the performance of the company, market trends, and the general economic climate.

 

Why Equity Shares Are Ideal for Long-Term Investment

Let us look at the major reasons why equity shares are the best investment option for long-term investors.

 

1. Historically High Returns

Equity share investments have historically performed better than other investments like fixed deposits, gold, and even real estate investments over the longer period.

To take an example, indices on larger stocks such as the S&P 500 or the Nifty 50 have averaged returns of 10-12% per year over decades. Although there are ups and downs in the short run, the trend in the long run is upwards.

Fact: An investment of 1 lakh in a diversified stock portfolio 20 years back could have doubled, tripled, or more than tripled to more than 10 lakh-15 lakh, according to the performance in the market and the sector.

 

2. Compounding Power

When you hold on to your investment long term, you enjoy compounding. When you reinvest returns, i.e., dividends and capital gains, you are making your money work by making more money.

This snowball effect grows with time, particularly when you remain invested for 10, 15, or even 20 years or more.

 

3. Beating Inflation

As time passes, inflation takes your money. Savings accounts or fixed-income investments are not always able to keep up with the rising prices.

Equity shares, on the other hand, can outperform inflation, enabling you to maintain and increase your purchasing power.

 

4. Ownership and Vote Rights

As a shareholder, you own part of the company. This provides you with

• Voting Rights in key decisions of the company
• Dividends, in case the company passes on profits
• A sense of ownership of the growth of the company

No other investment offers you this degree of direct access to the company.

 

5. Liquidity and Flexibility

Equity shares are very liquid because they can be traded easily through stock markets. Unlike real estate or fixed deposits, you are not bound by years.

You are free to change your portfolio at any time according to your needs, goals, or the market situation.

 

6. Diversification Opportunities

Thousands of companies in various industries-- IT, healthcare, finance, energy, etc. This enables you to diversify your investments, mitigating risk in the process, and in the hopes of getting higher returns.

A properly diversified equity portfolio can help minimize the effect of bad performance in any single stock or sector.

 

7. Tax Advantages

Most countries have a lower tax rate on long-term capital gains on equity shares as compared to short-term gains or other forms of income. In some countries, tax can be even exempted on gains realized after a minimum period held.

This leaves you with more money in your pocket.

 

Real-Life Example

Assume you invested 50,000 in a good company like Infosys or Reliance Industries 20 years ago. The value of your share appreciation is now worth rupees lakhs, as you did not sell those to gain a few rupees.

Investors who hold stocks in the long term often make handsome profits out of the mere holding of such stocks without excessive trading.

 

Things to Keep in Mind

Although equity shares are an excellent long-term investment, you must keep in mind:

• Market Volatility: There can be volatility in the market. Focus on your long-term objectives.
• Do Your Homework: Invest in businesses whose fundamentals and prospects are good.
• Avoid Panic Selling: Slumps in the market are normal. Patience is rewarded.

 

How to Start Investing in Equity Shares

It does not require as much effort to get started as before

• Open a Demat and trading account with a trusted stockbroker.
• Invest with research firms or mutual funds (if you feel comfortable having them do it).
• Start smart and grow with time.
• Invest periodically, like monthly SIPs in share or equity mutual funds.
• Keep track of your investments, but do not overreact to day-to-day news.

 

Important Tips for Long-Term Equity Investing

The golden rules to enjoy the benefits of equity shares:

• Start Early: Do not rely on timing the market, rely on time in the market.
• Invest with a set frequency: Invest through SIP (Systematic Investment Plans) to maintain discipline.
• Don't Panic Sell: Ignore short-term market chatter
• Pick Popular Stocks: Buy stocks with a good track record, strong leadership, and strong fundamentals.
• Be Informed: Keep up-to-date with the market, companies, and economic environment.

 

Conclusion

Equity shares continue to be among the most attractive long-term investment vehicles because of the potential growth, liquidity, tax advantage, and the potential to beat inflation. They bring with them some risk, but staying invested in the long term will help mitigate this and increase the chances of success.

 

Equity shares can help you create wealth, fund your child’s education, or plan for retirement in the future.

 

Start early. Stay invested. Make your money work.