Things To Know Before Investing In Stock Market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stock, which represent ownership claims on businesses, these may include securities listed on a public stock exchange as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms.
If you are thinking of investment that could beat the inflation and also gives you good returns, one of the best option might be start investing in the stock market or share market.
If you have decided to invest your money in share market and go for it all by your self, so it is a good idea. The stock market, when properly understood, can help you make a lot of money but you can also lose your money if you don’t have the correct knowledge about investing in stock market.
So if you are thinking to invest your money in stock market and want to earn a good returns, there are few things you must know before you dive in the stock market.
Important points are :
1. Do Not Jump Blindly Into Stock Market
Stock market or Share market is good place to invest your money and get good returns from here but if enter in the stock market without basic knowledge it can also gives you the negative return at your investment.
Many a times it happens that while talking to friends, the discussion heads towards the stock market, and also how the stock market helps investors make big money. You might never have invested in the in the market, but after hearing about all those things you decide to buy some stocks. However, if you entered the market just to remain in the mainstream fashion, you have landed in for the wrong reason. You should invest in the market after getting the basic knowledge about it and in accordance with your financial goals.
2.Draw A Personal Financial Roadmap
Every Individual is unique and so is their investment goal. Before understanding the way the stock market works, one should first understand their financial goals and how long they want to get invested for it.
Before you make any investing decision, sit and take an honest look at your entire financial situation -especially if you have never made a financial plan before.
The first step to successful investing is figuring out your goals and risk taking- either on your own or with the help of financial professional. If you get the facts about saving and investing and follow through an intelligent plan, you should be able to gain financial security over the years and will definietly enjoy the benefits of managing your money.
3.Analyze Your Risk Appetite
All investment involve some degrees of risk. If you intend to purchase stocks, it is important that you understand before you invest that you could lose some or all of your money.
If you are hoping for only the best returns from your investment, that might be an optimistic approach. While you are getting ready to invest in the stock market, you must also keep in mind the risks associated with it. Once you have understood your investment goals and risk appetite, you can make an informed investment decision.
The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, which is the risk that inflation will outpace and erode returns overtime.
4.Stock Market Is Not A Money Making Machine
You must have heard the story about many investors who made their fortune through the market. many people think you can make money from stock market very fast and easily. Many believe that the stock market is like a money machine, which can turn them millionaire very quickly. It is true that many investors have made their profits through the stock markets but it was only possible because they have good market knowledge, made some good strategies and are also much disciplined in their approach.
Many people forget that a lot of people have lost their entire wealth, while some have been forced to sell their personal assets to cover the loss in the market.
Keep One thing in your mind, while you invest your money in stock market that stock market is not a money making machine it will give you good returns with good basic knowledge of stock market and correct strategies.
5. Educate Yourself, Learn The Basics Of Stock Market
Before you start investment in stock market, educate yourself and learn the basics of the market first. While you make your first investment, take the time to learn the basics about the stock market and the individual securities composing the market.
When you are thinking to start investing your money in stock market your focus will be upon individual securities which you are investing in and the relationship with the broader economy and the factors that drive your stocks.
Before entering in the stock market, some important points or areas which you should be familiar with and these areas are :
- Popular methods of picking stocks and timing, like fundamental and technical knowledge
- Understanding Of financial definitions such as EPS, PE, Market cap, ROE etc..
- Trading basics, rules and terminology of stock markets such as market order, limit order, stop market order and so on.
- Gain some understanding about the market and its relationship with economy and with global market.
So if you want to earn good profits with stock market then don’t direct jump into the market but first have some basic understanding of stock market.
6. Diversify Your Portfolio
There is no thumb rule for investment diversification. The basic logic is that if you have a well-diversified investment portfolio, the risk of falling hard is reduced. If some of your stocks are not working out, you will still have other stocks that might out do the losses and help your portfolio stay afloat.
Experts suggests to creating a diversified portfolio, but not overly diversified that it hinders the growth of the portfolio as a whole. You can diversify across markets via geographies or sectors.
Never put all your money in one stock. Create a well-diversified portfolio of stocks that can help you reduce the risk and save you from losing money if a few stock do not perform well.
Also avoid over diversification, as increase in the number of stocks up to a certain limit do help in diversifying the risk proportionately, but beyond a certain number of stock your investment can’t get the proper growth movement.
7. Invest Only Your Surplus Fund
The biggest mistake while investing would be to make an investment that you can’t afford. Finance experts always suggests that invest only your surplus funds, as investing in the stock market has its potential risks. The big mistake would be to take a loan for investing.
Investing in stock market is risky, and that means that you can potentially lose everything. Like any investment, there are inherent risks associated with the stock market Some are the risks related to the overall market as systematic risk that you can’t avoid by diversifying your portfolio, while some risks are stock specific that you can avoid.
You need to decide your own risk tolerance considering your age, financial strength, retirement goal, etc, and accordingly should take the risk. If you want to take risk in the stock market, then only invest your surplus funds which you can afford to lose.
8. Follow a Disciplined Investment Approach
Majority of investors try to time the market, something that financial planners have always been warning them to avoid, and thus lose their hard earning money in the process. If you want to earn a good profit with stock market, follow a disciplined investment approach. You can’t become millionaire overnight by investing in the stock market.
No one is able to successfully and consistently time the market by catching the tops and bottoms over multiple business or stock market cycles. You can invest over a period small amounts of money to average the market and can get the benefit in the long term.
You can’t get big return overnight but investors who put in right shares systematically over the long term. generate outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.
Unlike many investors do, you should avoid the herd mentality that is influenced by the actions of your neighbors or relatives without evaluating the current information and underlying stocks. Don’t herd or follow others for investing in stock market, but follow a disciplined approach for investment in stock market, it will help you to earn a good profit from market.
9. Be Realistic While Investing In Stock Market
While investing in stock market, keep your emotions aside. Never get fixated or too attached to any particular stock. The key is to get rid of the fear as well as greed.
Separate your emotions from any particular stock as many investors end losing money in stock markets due to their inability to control emotions. Do not invest In any speculative unknown stock lured by its past fabulous return without understanding the risk involved that will lead you to suffer loss. In a bear market, control your fear and don’t panic and sell shares at rock-bottom prices. Thus, Fear and greed are the worst emotions to feel when investing, and it is better not to be guided them.
Hoping for the “best” from your investment is not wrong but you could be realistic about the ups and downs of the market. Lot’s of stock have generated more than 100 percent returns during the bull run of recent years but if you think you will always get the same return from the stock market, is a unrealistic thinking.
It is important for you to monitor you investment and review it periodically as any important event happen globally, it does impact on our financial markets. So be realistic while you invest in stock market.
10. Choose Stocks of Good Established Companies
Companies that have robust businesses and a great brand value are less likely to suffer huge losses. Though they might not provide high returns in short term, they are a good investment for long term.
If you want good returns form your stocks, choose good established companies. The data of companies that give regular dividends and bonus are easily available online. See the historical returns and market standing of the company. you will find that most investors keep long term position in such stocks. This help them grow their wealth and income consistently.
So if you want start investing in stock market, first take some knowledge about the company in which you are thinking to invest your money. Choose the stocks of established companies which will give you good return from your investment.
So if you are thinking to invest in stock market and want to earn good returns from it then these tips will help you to start your stock market journey. Stock market are one of the most attractive investment destinations. you can earn good returns or grow your wealth by investing practically.
With some good and basic knowledge you earn a good return from stock market but don’t think you will become millionaire overnight by investing in stock market.
In this article we have given you the top 10 tips to start your journey in stock market , these tips will help you while you invest your money in stock market. So if you like this article share it with your friends and family or if you have any doubts or query related to this article comment us.