By Anish Singh Thakur
Gone are the days when investments were limited to just financial experts. With digital platforms and smartphones, the stock market is accessible to all. It has become an open avenue that welcomes even new investors to learn, invest and gain. While there is no shortcut to investing, following a set of rules and understanding the market can do wonders for beginners. Investing in the stock market comes with its own share of ups and downs. It is important to understand that making investments in stocks can be rewarding and even lead to losses. The movement of the market is not always upwards. Therefore one needs time, patience, and the right mindset to make sound investments.
Investing in the stock market can be long-term or short-term, depending on each investor’s financial goals. Here are a few things you should keep in mind to make well-informed investment decisions.
Plan and invest
The first thing to understand is that, unlike mutual funds, investing directly in shares comes with its share of risks and gains. Make sure to plan and determine a capital amount before investing, as it is a slow and constant process. One of the crucial factors is to protect your capital by analyzing your risk appetite. Rather than blindly following the ‘high risk, high return’ philosophy, you should consider the long-term implications of your investments.
While deciding which stocks to invest in, determine your loss-bearing capacity per trade. This will help you devise a buyback and exit plan if markets go downhill. Also, make sure to diversify your investments. It will maintain a balance if the bid price of one stock goes down. Investing in a set of different equities also helps in reaping greater rewards in the longer run.
Understand the market
New investors must understand that stock market fluctuations can not be predicted. Even seasoned investors can’t accurately predict market behavior always. It is important to understand how markets operate. If one day a stock price goes up, there are chances that the bid price might dip the next day. Therefore, it is important to understand the factors that influence the stock market. Going wrong on an investment decision is common even among experienced investors. Here, make sure to focus on long-term returns from investments rather than focusing on short-term losses.
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Amateur investors often expect higher returns immediately. For example, expecting to make a profit of more than 100% on stock every year is unrealistic. Expecting 20-25 percent returns, on the other hand, is a possibility. While some investments might bear high returns, one should make realistic investment decisions. Making achievable financial goals is the first step toward making informed and strategic investments. Furthermore, avoid schemes that promise high returns in a short period of time. Before you invest, make sure you do thorough research.
Avoid leveraged instruments initially
New investors should start investing in equities in the cash division and refrain from leveraged finance. Leveraged investing is a strategy that seeks to increase investment profits by borrowing money. These profits are derived from the difference between the investment returns on borrowed capital and the cost of interest. The likelihood of making a profit increases, but the likelihood of losing money increases as well. Therefore, investing through future and options puts an investor at greater risk.
Many young investors go overboard when strategizing and purchasing stock. To maintain financial stability, one must keep things simple. Keep your analysis as simple as possible. As previously stated, the stock market is a volatile environment. However, you must ensure that your reactions do not reflect the market’s volatility. Make certain that you never make rash and immediate decisions. Instead of panicking over the stock’s performance, you should develop a broad strategy and stick to it.
The stock market can be a very rewarding place to make investments, especially if you avoid some of the pitfalls that most new investors face when first getting started. Beginners should develop an investing strategy that works for them and stick to it through both good and bad times, regardless of market conditions.
(The author is CEO of Booming Bulls Academy. Views expressed above are those of the author and not necessarily of financialexpress.com. Please consult your financial advisor before making any investment decision)