Equity Investing: Should You Go All-In?

Equity investing can provide you with a lot of potential as an investor. This potential has enticed many investors to get involved exclusively in the equity market. Here are a few things to consider about whether you should deal only with equities. 

Equity Investing

The term equity investing essentially means that you are investing in the stock market. Stocks are the most common type of investment in the market today. There are many investors that deal only with stocks, that do not diversify their portfolios with other types of investments. If you are thinking about investing in this manner, there are several things that you will need to consider.

Higher Returns

The primary reason that many investors want to invest only in the stock market is so that they can get higher returns. Historically, the stock market has always increased in value. Therefore, if you take a long-term approach to investing, you are going to be able to increase your portfolio with stocks. Stocks also have higher average returns than other types of investments.

Higher Risk

Even though you are potentially going to get more of a return with stocks, you should also be aware that you are taking on more risk. When you invest in stocks, you have to understand that you could potentially lose your entire investment. If the company that you invest in goes bankrupt, you are going to lose everything. Because of this, stocks represent a higher risk investment than other choices that you could put your money into.

Diversification

If you are going to put all your money into the equity market, you will want to spend some time diversifying your portfolio. By diversifying, you can more effectively avoid sector risk. The stock market is comprised of several different sectors. These sectors do not always move in unison. By investing some of your money into each sector, you can diversify your portfolio and lower the overall risk of your investments. If one sector is performing poorly, the other sectors will potentially be doing better. This means that you can increase your returns and lower your risk at the same time.

Exposure to Market Risk

When you invest only in the stock market, you need to be aware that you are exposed to market risk. In some cases, the entire stock market will perform poorly. For example, when the stock market crashes, nearly every stock is going to perform poorly. If all of your money is tied up in the stock market, you are going to lose quite a bit of the gains that you have accumulated. Because of this market risk, many investors like to diversify their portfolios by including other investments such as bonds or commodities. If you are willing to put all of your money into the stock market, you are going to have to live with the idea that the entire market could crash and you could lose your money. As long as you can live with this risk, you could benefit from greater returns in the stock market.

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