Where Is The Risk In Long-term Equity Investing?

For long-term investors, market volatility may not be necessarily synonymous with risk, and should be seen as an opportunity

- Anshul Saigal

The dictionary definition of risk is “the possibility of loss”. Loss in the context of equity investing could occur due to loss of capital in hand, or loss of opportunity. Given that many investors enter the market with an objective to generate quick returns, they expose themselves to the risk of capital.

Emotional reactions to contemporary matters such as the US Federal Reserve rate changes, unrest in Hong Kong, etc, lead to short-term price fluctuations or volatility in markets. Volatility may be perceived as a risk by someone whose objective is to make short-term trading returns. If prices fall due to an adverse reaction to the news, such risks would materialize and the trader would incur losses. For longterm investors, such volatility may not be synonymous with risk and should be seen as an opportunity.

If not volatility, what is risk?

Risk may be assessed from the risk of fundamentals and behavioral risk when it comes to a long-term investor.

Risk of fundamentals: Investment is a fractional ownership in the equity business. Long-term earnings growth of the markets, in general, and in business, particularly, is a key determinant of long-term stock-price movement.