Investing in stocks gives investors an opportunity to build assets in the longer run. It is one of the most popular forms of investments in India as well as across the globe. However, it is not easy to get returns from investing in stocks as it requires a lot of patience and through research.
One must understand the nitty-gritty’s of the stock market before diving into it. Stock market trading is full of uncertainty as there is a chance you could lose your hard-earned money.
Top 7 Golden Rules one Should Follow While Making Stock Investment:
Understand and follow the basics of stock trading:
Firstly, it is extremely important to understand the stock market and get the knowledge about the basics. You must research thoroughly before investing in stocks. Know your needs and make a financial plan accordingly. It is important that investors should closely monitor the way different assets are performing in varying macroeconomic conditions. Following the fundamentals of stock trading is the key to get good long-term returns from investing in stocks. You should take an informed decision before investing in stocks.
Have a diversified portfolio:
Do not put all your eggs in one basket. This essentially means, avoid investing your money in just one stock as it increases the risk of losing money owing to under performance. Always work on having a diversified portfolio to earn optimum returns on investments with minimum risk. However, you should also be careful not to go overboard by having a broad stock portfolio as it may not give you significant returns. Once you have diversified your portfolio, make sure to evaluate it regularly. Portfolio evaluation will help you make important adjustments to your investments.
Go against the herd:
It is important to stick to your plan and not get affected by the noise around you about stocks and their performance. Make sure to stay away from the herd mentality and buy or sell a particular stock just because most of the people are doing it. It is strongly advised to stop imitating stock investment decisions. Going with the herd from time to time in case of stocks will increase your chances of losing money in the long run.
Invest in an established business:
Always invest in business and not in a stock. Invest in businesses that are well established instead of going for turnaround companies. Understand the the fundamentals of the the company and make a sound decision to invest in it. Just following the price trend and history of the share is not enough as you also need to consider the future growth and potential of the company. Focus on the valuation of a stock. Simple metrics, in the context of growth, like risk and quality, will help you decide whether a valuation of a stock is cheap, expensive or right.
Keep emotions away while investing:
Emotions should be kept at bay while investing in stocks. There are investors who get attached to the stock and are not ready to sell it even if it not performing well for a long term. Refrain from being greedy and scared while making an investment-related decision. Also, avoid buying shares of unknown companies without really understanding the risks involved. You must always think rationally while buying or selling stocks and not let emotions come in way of your investment decisions.
Invest only your excess funds:
Always invest in stock market with the funds that you don’t need for a long time. As domestic stock market is volatile in nature and it is not easy to predict the rise and fall of the prices. 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. Make sure to invest only the extra money in the stocks and keep a decent balance in liquid as it cannot be used in case of emergencies in the short term. You should not buy stocks if you don’t have surplus funds that you will not need for a long term. Also, don’t invest in stocks that are beyond your capacity. Assess your risk profile which is dependent on your day-to-day requirements, number of dependants and your age. Furthermore, investors should avoid investing borrowed money in shares.
Have realistic expectations:
Lastly, it is important that you have realistic expectations from your stock investments. If a stock has performed really well in the past that does not necessarily mean that it will perform really in the future as well. Hence, it is better not to expect the same level of strong performance of the stock at the time of investing. This is mainly because; the stock market could gain or lose a substantial portion of its value in a year due to several small or big economic conditions. Hence, it is important to understand the market before having huge expectations from the stock in which you have invested.
Stock market is not a place for investors who are eyeing to make quick money. Investing in stocks for a longer-time has proved to offer great benefits for investors. A stock grows in value when you invest in the it for a longer duration. Investors who follow the fundamentals of investment by putting in money systematically have garnered good returns. Meanwhile, an investor with a wrong judgment and lack of research can end up losing his/her hard-earned money.
First-time investors should not depend on stock trading to meet their day-to-day needs as it can be extremely stressful. Finally, it is completely okay to seek professional help before starting your investment in stocks. There are several websites like Bankbazaar.com that have lot of information about various kinds of stocks. Going through them can help the investor a great deal.