A long-term secured investment is one of the best ways to
generate wealth and keep it stable. On the other hand, investing in stocks has
always been touted as a getaway to quick money. However, investing in the stock
market is not easy and requires lot of research and knowledge about the market
and the on-going trends. Stock market trading involves several risks as there
are no guaranteed returns and there is a good chance of losing your investment.
However, an investor who has been holding stocks for a longer period of time
has a greater possibility of receiving handsome returns. Even if the stock is
performing badly for a shorter period of time, it is advised to still hold the
stock as it will eventually draw in returns.
There are several parameters an investor has to look out
for before investing in stock market. Here are few steps that will help you
invest in the stock market without worrying too much about the risks:
- Research and understand the stock market:
First and foremost, it is important to research and gain some decent
knowledge about the market. This will help you immensely in a lot of ways.
As business and economic cycle change quite frequently, one must
understand when to invest and when not to. One of the favorable times to
invest in the market is when the economy is in a boom cycle and when the
market sees a short-term fall. To keep yourself updated with the
ever-changing market trends, you can keep a track of the current affairs
in the world of stocks. You can also gather information about the
company’s performance that you are interested in.
- Beware of the herd mentality:
It is extremely important to not follow the herd mentality. This
essentially means, if a lot of people are putting their money in one
stock, avoid following them and investing in the same stock. It is
important to evaluate the current market trends before investing and
hence, avoid joining the herd and make an investment blindly without doing
any research. It is highly advised to stop imitating investment decisions
especially in case of stocks.
- Diversify your investment portfolio:
It is important to diversify the portfolio broadly while investing in
various stocks and assets. Avoid putting all your money into a single
stock, as the risk heightens if it does not perform well. You can minimize
the risk associated with stock trading by investing in a diverse stock
portfolio. In order to diversify
your investment portfolio, you can check out all the top companies that
are listed on Nifty 50. At the same time, make sure you have not gone
overboard by investing in a number of stocks as it may not give you
significant returns.
- Keep emotions at bay: You
should have a good control on your emotions while trading in stocks. Also,
you should have risk-taking abilities. In addition to this, you should refrain from being greedy and scared
while making an investment-related decision. In
addition, there are some investors who get emotionally attached to a stock
and are biased towards it. This can prove to be financially dangerous at
times when the stock is not performing well. They either invest in it or
are not able to exit it at the right time as they are emotionally attached
to the stock. Hence, it is advised to always think rationally while
investing in stocks and keep emotions at bay.
- Invest only excess funds: There
can be situations where you earn some extra money. Investing the extra
takeaway in funds can be a good option. However, you must understand that a stock market is volatile in
nature meaning - the rise and fall of the prices are unpredictable. You
can either gain from the stock or get no return from it. Hence, it is advised to invest the
excess funds that you can afford to lose. As investing in stock market is
full of risks, it is safe to use the surplus fund and keep the required
investment safe. Also, make sure to not invest your emergency fund in the
stock market.
- Look out for stock fundamentals:
It must be noted that a stock is actually a company. So, when you invest
in a stock you are investing in the company and therefore, you need to
look out for the fundamentals of the company. An investor should do a
thorough research on the company before investing in it. Just following
the price trend and history of the share is not enough as you need to
understand and consider the future growth and potential of the company.
This will give you a better chance of gaining from your stock investments.
- Portfolio evaluation is important: Finally, it is important to evaluate your portfolio regularly. This will help you make important adjustments to your investment. The stocks which are not performing well or are not giving any returns should be sold. This will give you some additional money that can be used for either investing again in stocks or other investment opportunities.
Investing in stocks gives investors an opportunity to
build assets in the longer run. This acts as a good investment option and can
help one reap benefits for a long time, of course, only when invested
mindfully. One should follow a disciplined investment approach, run a thorough
research using reliable sources (online as well as offline), and also have
realistic expectations about these investments. Investors who have a dedicated
investment plan and discipline in monitoring the portfolio have been able to
generate great returns. However, an investor should be careful as stock markets
can be tricky and there is a possibility that you will lose your hard-earned
money due to a poor judgement or lack of research. He/she will gradually
understand the nitty- gritties of the stock market and get a better idea of how
to improve earnings with the changing dynamics. Ideally, an investor should
come up with his/her own strategy on investing in stocks and rework on it as
per the market conditions. There is ample amount of literature available on the
websites like Bankbazaar.com about
various kinds of stocks. Going through them can help the investor a great
deal.
