Equity markets are one of the most attractive investment destinations for young investors. You can grow your wealth by investing practically, but making hasty decisions can quickly cause you to lose your money.
Even with limited or no knowledge of the stock markets, a new investor can always look to invest. It is similar to cricket.
When you are new to the crease, you should be defensive. Being aggressive can cost you your wicket.
This article discusses 10 tips to help you plan your stock market investments and ace your investment journey. So, let’s get started.
Understand the Stock Markets
The first step to becoming a successful investor is to know the basics of the trade. It is important to know the process of stock trading. All the details you need to know about trading and the related technical terms can be easily learned from websites online.
You should also learn the art of choosing the right stocks. What are the basic ratios and financial statements published by the companies? What are the brokerages charged and the tax implications?
Understand your Risk profile and Investment Goals
The first and one of the best share market tips is to identify your investment goals.
You may be looking to fund your children’s education, or you may need money for your wedding. Additionally, you can invest your money to buy an asset or simply grow your money.
After this, you have to decide the time in which you want to achieve this goal. This time can be short-term, medium-term, or long-term.
If you want to earn higher returns in less time, you have to take higher risks because higher risk generates high returns.
Trading or Investing
This is the most common query of a new investor. The answer is simple.
Trading requires regular attention and expertise. If you are a market expert and want to make trading in stock markets your primary profession, you can give it a try.
Otherwise, it is better to start as an investor.
As you gain experience and understand the market, you can also start trying your luck in trading with limited capital first.
Shares or Mutual Funds
Mutual funds are entities that pool investors’ money and invest this amount in the stock markets.
For this purpose, they appoint specialist fund managers. The fund manager has to make investment decisions that reduce the risk and maximize the returns.
If you are a new investor and do not have much time to spare for studying the stock markets, you can invest your money in mutual funds.
Choose Stocks of 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 the short term, they are a good investment for the long term.
The data of companies that give regular dividends and bonuses are easily available online.
You can see the historical returns and market standing of the company. You will find that most investors keep long-term positions in such companies. This helps them grow their wealth consistently.
Start Analyzing Yourself
It is never advisable to rely entirely on the suggestions of market experts. Instead, it is a good idea to analyze the market yourself and study the market movements regularly.
This will help you make informed decisions and reduce the risk of losses. Once you start analyzing regularly, you can get a hold of the market and identify the movements correctly.
Derivatives like futures and options are sophisticated instruments that require stock market expertise.
You can purchase much more stake in derivatives than in stocks. This is because the margin money required is very low and is usually for a specified short-term duration.
However, investors get blinded by this and forget that these are complicated instruments. It is usually expert investors who play in the derivative markets.
Therefore, it is better to avoid them until you get a hold of the trade.
Don’t Make Decisions Emotionally
The phrase ‘Market or investors sentiments’ is used by experts to express the short-term trends in stocks. But it is not feasible in the long run.
When the pandemic struck, experts predicted that the markets would fall because of a weak economy. But, the downside lasted only for some time. As of today, the markets are at an all-time high.
Hence, it is advised to invest a limited corpus which you can afford instead of investing huge sums of money.
Identify Potential Sectors
Some sectors are more likely to grow than others.
For example, during the early days of the pandemic, while most other sectors were affected, the pharma industry was working at its full capacity. Even though the markets moved south, the pharma industry grew.
Similarly, you can identify sectors that have high growth potential and are the centre of emphasis.
Build Diversified Portfolio and Reduce Your Risk
You should build a diversified portfolio for investing.
When you invest in stocks from different sectors, you can reduce your risk. All the sectors of an economy never suffer at the same time. If one sector doesn’t perform well, other sectors can cover your losses. This is the benefit of diversification.