Every equity
investor must take utmost care and maintain discipline while investing in the
stock markets.
Investments
are made keeping various reasons in mind, like to achieve financial needs, to buy a
house property, to plan a child’s education and several other reasons.
Nobody can
control the markets. However, investing in a planned and strategic manner can
help one in making the right investment decisions.
We mention below some tips that will help while investing in the stock market :
1. Buy stocks when you
analyze the company
Stock investing requires careful analysis of financial data to find out the company's true worth. This is generally done by examining the company's profit and loss account, balance sheet and cash flow statement. This can be time-consuming and cumbersome. An easier way to find out about a company's performance is to look at its financial ratios, most of which are freely available on the internet.
2.
Understand your
risk-taking capacity
Some people,
by nature, want to play safe, they do not want to lose their sleep over the
prospect of losing money. These people are risk averse. Others are aggressive,
more motivated by prospect of making money rather than the risk of losing it.
They are the risk takers. Willingness to take risk is known as risk appetite.
However, willingness to take risks may or may not be correlated with the
person’s ability to take risks. For example, a 25 year old young professional
with good income and no liabilities may have low risk appetite, even though his
ability of taking risks should be high. The ability to take risks is known as
the risk capacity of an individual.
3.
Diversify your stock
portfolio
The old idiom, “don’t put all your eggs in one basket” is the essence of diversification in financial planning. If you invest all your money in one company and if the company goes bankrupt, then you can lose all your money. Instead of investing in one company, if you split your investment in two companies, you will reduce the odds of losing your money by say 50%. By investing in four companies you will reduce odds of losing money by say 75%. Risks and returns are directly related. Different types of assets have different risk and return characteristics. Through diversification you will be able to balance risk and return to achieve desired results for your financial goals. As such, diversification is one of the most important aspects, if not the most important aspect of financial planning and portfolio management.
4.
Have a realistic returns
expectations
A key assumption that you need to make while setting financial goals is the return from investments. This is because unrealistic expectations can leave your finances in a mess. Let's assume you want to save Rs 10 lakh in the next 10 years and expect a 20% return on investment every year. On the basis of this assumption, you will have to invest Rs 2,615 every month for 10 years.
The key to the long-term success,
therefore, is to have realistic expectations and patience to allow investments
to grow in a disciplined manner.
5.
Periodic monitoring of your
Investments
You don't have to have your TV tuned in to CNBC at all times,
but you should stay up to date with the latest news from the financial media,
and try to watch finance-focused videos at least once a week. The web,
including social media, is another terrific place to read about strategies for
investing and get a feel for what the professionals are saying about the
market's anticipated direction. To cut through all the excess reading, just
make sure you get a handle on which industries are in or out of favor, along
with the health of the overall market.
Remember that geopolitical developments can affect your portfolio holdings—so can news of higher taxes, or currency fluctuations. This means that you should at the very least, catch up with a recap of developments at the end of each week. The goal here is to get the big picture or the trend, and then to make changes to your portfolio accordingly.
6.
Have patience when you
invest
Though long-term holding of investments is important, it would be imprudent to just buy and forget about it. You need to review your portfolio at least once a year to track the performance of your investments. The review will enable you to find out if you should continue with the investments or if there is a need to weed out any non-performing ones.
Remember to not fall prey to schemes offering easy/quick
profits. Clearly define your short, medium, and long-term goals and then select
the appropriate assets based on your risk profile and time horizon to goal.
Invest regularly regardless of market conditions to grow your wealth and
achieve your investment objectives.
7.
Take guidance from
Financial advisor
You may wonder what a financial advisor does. In general, these professionals help you make decisions about what you should do with your money, which may include investments or other courses of action.
A financial advisor is not just someone who helps with
investments. Their job is to help you with every aspect of your financial life.
In fact, you could work with a financial advisor without having them manage
your portfolio or recommend any investments at all.
8.
Buy stocks in SIP method
The best way to tide over this volatility is to invest small
amounts through systematic investment plans (SIPs). You can start SIPs in
equities by either defining the amount you wish to invest or fixing the number
of shares you want to buy in a month. On the trigger date, the broker will buy
the shares for you at the prevailing market price.
It Benefits Salaried Persons Who Want to Achieve Long-Term Goals
Without Investing a Large Sum of Money: It is useful for salaried individuals
who want to achieve long-term goals without investing a large sum of money.
Investors can begin by investing a small quantity of money in the best equities
stock.
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