I was sitting in an airport lounge when a young woman approached me and said “I watch your YT videos, but sorry, I don’t invest in equities”. She left after a short conversation. My views on equities have changed over the past 4+ decades – it has only increased my ‘pro-equity’ stance.
Thanks to late Mr. Jack Bogle (Vanguard funds) in USA, Sebi, and competition, the asset management fees are at its lowest. There is a fantastic back end – the stock exchange creates a price discovery mechanism so I am sure that the asset manager is not lying about the transaction price, timing or quantity. Unlike Private equity, Real estate, Private credit, Art, venture capital funding, the equity market is open (MFs too). If you are a young investor there are many OLD reasons too to invest in equities.
Equities are often considered the best asset class for young investors due to their unique combination of growth potential, time horizon alignment, and risk-reward dynamics. Here’s why:
High Growth Potential: Equities historically offer higher average returns compared to other asset classes like bonds or cash. Over long periods, stocks have averaged around 7-10% annual returns (inflation-adjusted) in major markets like the US, driven by corporate earnings growth and economic expansion. For example, the S&P 500 has delivered a nominal return of about 10.5% annually from 1926 to 2024. In India, the TRI Sensex has gone from 100 in 1979 to 166,000 in 2025. This is 18% CAGR! -without adjusting for inflation.
Long Time Horizon: Young investors typically have decades before retirement, allowing them to ride out market volatility. Equities are volatile in the short term, with frequent corrections (10-20% drops) and occasional crashes. However, over 20-30 years, the probability of negative returns diminishes significantly.
Compounding Returns: The power of compounding is amplified with equities due to their higher returns.
Inflation Hedge: Equities tend to outpace inflation over time, preserving and growing purchasing power. Companies can raise prices and increase profits, unlike fixed-income assets, which lose real value in inflationary environments.
Diversification and Accessibility: Equities offer broad diversification through index funds or ETFs, reducing company-specific risk. Young investors can start with a small amount of SIP, making equities more accessible than real estate or private investments.
Risk Tolerance: Young investors can afford to take on the higher risk of equities because they have time to recover from downturns and fewer immediate liquidity needs.
Diversification Matters: Concentration in a single share of sectors increases risk. Broad market funds are safer.
Equities align with young investors’ long time horizons, risk tolerance, and wealth-building goals, offering unmatched growth potential through compounding and inflation protection. Starting early and staying consistent maximize these benefits.
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest Rs 40 a day’