“Early to bed, early to rise. Makes a person healthy, wealthy, and wise.”
My grandmother often used to remind us of the above saying. As children, my brother and I believed in her words and tried our best to go to bed early and wake up early.
If only the way to wealth was that easy!
Similarly, being wealthy is a dream for many. People study hard and work towards being employed in their dream companies or fields. They watch their spending habits, stash away their salaries in fixed deposits, and invest in real estate and stocks. All with a hope that one day they will achieve financial freedom if they earn enough, save enough, and invest enough. While being wealthy can be made possible if you earn, save, and invest, staying wealthy takes much more than that.
As an investor, building wealth does not happen naturally merely by focusing on the “saving” aspect. It is equally important to invest it in the right instruments that will yield good returns in the future. A good return is up for debate as people often have differing opinions regarding what a good share of profit is, and varies depending on the market climate. It is safe to assume that stocks with an earning capacity of 15 percent are an ideal investment option in the present scenario.
Principles of long-term wealth creation
In long-term investment, time remains an imperative factor. Money is compounded, and wealth is generated or lost within seconds and minutes. Thus, it becomes crucial not to liquidate your investment prematurely. To abide by this principle, you must always have enough liquid cash in savings accounts, which can be used for living expenses. Lack of this cushion may lead you to take money out of your investment, denying it the time needed to grow and multiply.
There is no easy money in an investment. Those who are patient enough to wait for a set number of years reap the highest benefits. For example, midcap stocks require several years of investment when compared to large-cap stocks. Also, it is essential not to invest just because your friend or relative suggests a share. There could be variations in the risk appetite, and each person may have a different portfolio and milestones for wealth creation.
Points to consider before choosing a long-term stock
Before investing your hard-earned money into stocks, it is crucial to carry out enough research about the industry and the individual company in which you are about to invest. Studying financial statements, operating income, profitability, revenue, leverage, and liquidity ratio are essential but not enough while choosing to invest in a particular company of any industry.
The information lies in its past performance, its substantial growth, it’s standing with governmental authorities, business model, future opportunities, and management. These factors can help you decide about the underlying asset in a clear and detailed manner.
This study can also help gauge whether a stock is undervalued or overvalued. An undervalued stock is sold at a market value, which is a lower price than what it is worth, and similarly, an overvalued is sold at a higher price than its actual worth in the market.
Selecting the best stocks for long-term investment
Everything boils down to data when it comes to considering stocks for long-term investment. Data can explain what stock you should purchase and why.
The “when” question is up for debate as several opinions suggest buying stocks when the market is down. While we need to buy when prices are lower and sell when prices are higher, it is vital to consider the factors mentioned above while evaluating the stock.
Starting with the annual report, you can dive into more performance details online. While net revenue, profitability, company size, and growth play a significant part in determining the worth of a company’s stock, one of the best measures one can look at is finding out the share’s intrinsic value.
Apart from analysing just the historical performance, it might be prudent to evaluate future possibilities, and growth opportunities for the company as what worked in the past may no longer be applicable in today’s ever-changing times.
Below are some of the best sectors you could consider investing in for a long-term duration.
Hospitals:Hospitals are, for the most part, good options for stock investment due to the consistent demand for health services, especially amidst COVID-19. This is one of the best long-term stocks available.
Optical Technologies:Optical fibre manufacturers would be an excellent pick to buy as digital connectivity across India is a priority for our government with the ‘Digital India’ initiative.
Pharmaceuticals:With the current pandemic situation affecting globally, there are no guesses required for why pharmaceuticals hold a top position in the stock market. Long-term stock options in the pharmaceutical industry is always a good option, no matter what. This is one of the best long-term stock picks of India.
Sports and fashion accessories: Increase in the customs duty to boost the domestic sector will enhance the profitability of this segment. It is a good buy in the near and long term.
Fast-moving consumer goods:Such MNCs offering high dividend yield do well, especially given the removal of the Dividend Distribution Tax (DDT) at the company’s end. These taxes were a detractor to several companies that pay out large dividends. With DDT gone, demand for high paying dividend stocks will go up, increasing their stock price. If you’re looking for the best dividend-generating long-term stock, look no further.
Finance:The finance sector is going through a transformation like no other, with all banking and financial services going digital and accessible. Companies with a strong legacy and solid fundamentals have a higher chance of making this transition successfully and expanding their customer base with digital innovation. These select stocks are only set to rise as millennial customers rely on digital banking for managing their finances.
Fisheries: With the vision of expanding the fishing production, the finance minister has announced a raising of fish production to 200 lakh tonnes in FY 20-21. Fisheries companies will be significant beneficiaries, making it a big deal in the stock market for years to come.
Circuit board Technologies: Circuit board manufacturers in India are the right choice. The increment in the import duty of critical products will deliver high revenues in the books of domestic companies.
IT Software Services: These companies are well-known for distributing hefty dividends to their investors. Removal of the related tax will push it further to distribute more dividends. Being one of India’s largest sectors as per free-float market capitalisation, IT software companies will be the flavour of the town, as the removal of the Dividend Distribution Tax will attract more investors.
Logistics: The upcoming release of National Logistics Policy, which will bifurcate the roles of State Government and Central Government and the associated regulators, simplify the terminology of the logistics sector. With this, the stock market will tend to favour logistics big time in the future.
An informed decision is what helps when it comes to purchasing long term stocks. By studying financial statements, operating income, profitability, revenue, leverage, liquidity ratio, company’s past performance, company growth, company’s standing with governmental authorities, business model, and management, you can receive much-needed information which can help you decide on the best stocks to buy for long term growth.
There are several options for the best stocks for long term investments, and given time to grow; you can build your wealth securely.
Need more specific inputs on stock selection? Reach out to our expert financial advisors, who will provide customised guidance to help you achieve your financial goals in the long-term.