Tuesday, July 3, 2018

7 steps to invest in stock market without too much risk


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:

  1. 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. 
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.