How to Invest In Stock Market
Investing in the stock market is no rocket science. Anybody can master the art and enjoy an excellent return on the money spent. This is not magic, either! Your money will not grow at an unrealistic rate, making you remarkably richer in no time. However, it is reasonable to claim that a consistent and wise investor can fetch profit from investing in the stock market. So, if you are wondering for some time now about how to invest in stock market and get a good return, you must know the basics first.
Contrary to popular believe, starting your journey as a stock market investor does not require havoc saving. Instead, it calls for keeping an eye on what’s happening in the money market and strategizing your investment decisions accordingly. But first, you need to know the requirements to start investing in the stock market to understand how to invest in stock market.
Open a trading and demat account to start your journey as a stock market investor :
A trading and demat account are mandatory to buy and sell stocks. Most of the banking institutions allow opening demat accounts. You will need to provide your ADHAAR and PAN details, Bank account details, Bank statement, and a personalized cheque. Then taking assistance from a SEBI registered broker, you can open the account with zero hassle. Moreover, online application has now made the process pretty quick. Most of them will provide a brief guide on how to invest in stock market as well.
Once you are done with the process of opening your trading account, you are all set to start buying (and selling) stocks. But do not get carried away by all the suggestions come your way. Many of the suggestions that you get to hear on how to invest in stock market can be categorized as a myth and need to be debunked ASAP.
Wondering what suggestions can help you to make money by investing in the stock market? We have put together all DOs and DON’Ts to provide you with a stock market investment guide that can actually help! Read on to know.
Here’s our guide on how to invest in stock market. Let’s start learning!
Investing in stock market is not a cumbersome process, unlike many of your peers and acquaintances believe. But as a beginner, you must know the principles of how to invest in stock market. All successful stock market investors, as well as the financial analysts, believe in learning the foundational points of how to invest in stock market and adhering to them rigorously. This facilitates your ability to trade while minimizing the risk of losing money.
In case of stock market investment, it is irrational to claim that following the underpinnings can ensure you will never face a loss. However, this guide on how to invest in stock market safeguards you and allows you to manage the risk better.
What are the risks that a new investor can face?
Fruitfully investing your money is always tricky. This might seem even more complicated if you are starting your journey as a stock market investor. So, before jumping into trading of stocks, you must identify potential risks.
- Not having a big amount of saving for investment
- Finding the right broker to open your account
- Understanding the minimum deposit requirement
- Selecting the investment products that are most suitable for you
Once you have successfully acknowledged the risks, as a smart beginner, you need to set investment strategies accordingly. The key to minimizing risk while investing in the stock market is assessing the risk and taking up investment measures in accord with your assessment of situation.
After you master this step of assessing risk, how to invest in stock market won’t seem to be a complicated puzzle to you anymore. You can focus on learning further to kick-start your journey as a stock market investor.
What are the things you must remember as a new investor in the money market ?
The purpose of investing your money in the money market is to get better return. However, if ‘how to invest in stock market’ becomes a tale of woe for you, the purpose is already wasted. So, stop worrying and make our suggestions your go-to mantra to realize the actual purpose of investing in stocks – getting an outstanding return on your investment.
Know your personality type as an investor
We all possess certain personality traits that dominate our actions and decision-making. Do not try to overrule these traits when making investment decisions in the money market. Are you someone who wants to take all investment decision by yourself, even as a newbie? Great! Or, do you want to take the ‘traditional’ path and want someone to manage your portfolio? Also great!
Simply put, it is essential to find your exact type before know further about how to invest in stock market and start investing. It is equally vital for traditionalists as well as self-starters to identify investment product types that you feel most suitable.
Stock mutual funds or ETFs (Exchange-traded funds):
Investing in stock mutual funds of ETFs allows you to choose a portfolio consisting of different stocks. This way, ETFs, as well as the index funds, ensures diversity in your portfolio and reduces risk.
In this case, you buy stocks of a particular firm. You have to select the quantity of share based on your willingness to spend in buying stocks. The bright side of buy individual stocks is that the returns can go up in meteoric fashion. However, unlike mutual funds, diversification can be a challenge for you if you cannot read the market well.
Know your investment capacity and invest accordingly
If you are seeking advice on how to invest in stock market, first ask yourself how much money you can spend in stock. No one can deny it that investing in stock market is risky, and there is a chance that you would lose all your money. More so because diversification allows you to avoid the risk that is specific to stocks you purchase. However, there is no way of eliminating systematic risk that exists in the money market. So, start with your surplus fund only.
No matter, if you are a beginner finding your answers on how to invest in stock market, or an experienced investor, avoiding leverage, won’t ever harm you. Many investors borrow money to invest in the stock market in an expectation that the return will outrun the loan interest rate.
Now the risky bit is if you incur a loss from your investment, it does not end here. You have to pay the interest on your borrowed money, making the loss more severe. On the other hand, if you make a solid profit, it can be a useful tool for you. So, leverage has its bright sides as well as down points. It is advisable to avoid such expectations until you gather good experience.
Identify risk profile and take rational decisions
Another thing you have to consider for analyzing your investor personality is your risk-taking ability. Risk propensity varies from person to person. If you are someone with a high-risk tolerance, you can act in a more adventurous and aggressive manner.
On the contrary, beginners with low-risk propensity need to focus more on selecting funds/shares that are comparatively less risky. Also, it is advisable to consider your age in this regard. As we lego older, it is wise to perform as a risk-averse person. This is because, if you start investing from an early age, you have more time in hand to wait to outweigh the risk and capture sound profit.
This also implies holding your stocks for long-term indicates greater prospect of profitability and lowers the risks. The mid-term invests, even in many cases the short-term investments too, can do well if you strategize accordingly.
Don’t try to time the market but keep an eye on market trends
One common stock market invest mantra is that it is not possible to time the market. It is albeit pretty unrealistic to assure you that you can find the lowest bottom to get in and sell your stocks when the market cycle reaches its peak. However, if you keep an eye to the market trends, trading can turn favorable to you. Sincere attention to market cycles can allow you to identify upward trends and make your purchases at that point. This enhances your chance to gain more profit. Besides, you get to hold your stocks, if you notice a falling trend.
Diversify but don’t overdo it
There are two sides of a coin. Same goes for diversification. It’s a great tool if you want to reduce risk and earn high profit. But good things are good, only if you do it correctly. One mistake that many newbies commit is that they tend to over-diversify their portfolio. This can challenge your possibility of getting the best profit moment.
Educate yourself and keep learning
If we have to give you one advice that sums up all your queries on how to invest in stock market, it has to be that never let your emotions control your decision-making. It is reasonable that a fall in price graph is going to make your heart skip a beat. However, that doesn’t necessarily mean you have to start panic-selling and sink yourself in a throat-deep loss. Contrastingly, don’t let the rocketing price lure you. Smart stock investors know the trick of controlling emotions and decide by understanding the market.
This understanding of market can grow only if you spare yourself enough time to study market performance. There is no alternative to learning how to invest in stock market effectively, especially when the field is utilizing your hard-earned money for a better return.
What are the right stocks for me?
The best part about starting the journey as a beginner to stock market investing is that it allows you to learn over time. Often the seasoned investors harbor knowledge that makes it difficult for them to path changing ideas. Interestingly, if you are still learning how to invest in stock market, it is easier for you to understand radical changes in market performance.
The primary purpose of talking about this knowledge adaptability is to inform you how important it is to remain flexible when operating in the stock market. However, this does not mean there is no thumbs rule for picking the right stocks.
Check company background
Do your research well before putting your money in a stock. One thing you must understand that however tempting it sounds to surprisingly good return from investing in stocks, it is not a gamble. So, don’t put your money in a company without a thorough analysis of a company’s performance. Checking the annual reports is the easiest way to understand their financial performance as well as get a clear idea of their goals and projects. Understanding these things tells you how to invest in stock market by predicting the benefits of investing in the company.
Company’s Management: Management of an organization directly influences performance and drives growth. So, if you look forward to knowing how to invest in stock market, develop an understanding of its stakeholders. Read what they have to say to develop an idea of its performance.
Company’s debt-equity ratio: This is a useful tool to assess a firm’s financial stability. If the debt-equity ratio is low, the firm is said to be more stable and vice-versa.
Your ‘how to invest in stock market’’ is not complete if you don’t get to know about day trading or the Intra-day trading. What it means is that you can buy and sell stocks on the same date. However, you must be very well aware of possible consequences, when considering day trading. Here is an standard disclosure that “Investment Stock market is subject to market risk.”
The first suggestion has to be not going for highly volatile company stocks. In this case, you involve the risk of affecting your return by any sudden shock/news. To explain this, we present to you a theory of inter-dependence. A more volatile stock possesses a higher risk of overreacting to any big change/news. This, in turn, affects your return. On the contrary, selecting stocks that have good liquidity can be your pick to optimize benefits from intra-day trading.
Focus on stocks first
How to invest in stock market can sound a brainstormer to any beginner. But the trick to master the science behind market investing is to understand the focus areas. As this guide on ‘how to invest in stock market as beginner’ mentions already, it is important to consider a company profile, but that is not enough. To enhance return, you have to analyze each stock separately.
Invest in blue-chip stocks:
Opting for the frontline blue-chip stocks or Sensex 30/ Nifty 50 stocks can be highly beneficial for any beginner. Other stocks often require sound knowledge on financial as well as technical ground, while the blue-chip stocks are good to trade in-line with the Sensex and Nifty and involve less risk.
Buy on dips:
Every time the markets crash, it is a smart move to add blue-chip stocks in your portfolio. This can increase your chance to get a compounded annual growth rate (CAGR) of around 20-25%. The new investor needs to read or analyze about how to invest in stock market.
The investor should examine the positive and negatives of developments in the industry and take advantage of any dip in the best way possible.
How to perform the elimination of stocks?
Your learning of ‘how to invest in stock market’ remains incomplete as long as you don’t learn to eliminate shortlisted stocks to decide on the final one. The procedure for selecting stocks to invest should start with making a master list. In this list, you have to shortlist all potentially beneficial stocks as per your understanding. This can be done effectively if you have read the prior section of this article on ‘how to invest in stock market’. However, this covers the three-quarters of the requirements. Elimination of stocks and finalizing your selection follows these steps, and arguably the most critical part of your learning
Elimination of stocks incorporates two parts in it. The first part is crossing off companies that are comparatively less popular in the market. The sole purpose of doing this is eliminating risk. Once you have done this, the master list is now shorter; yet requires further elimination. Here, you must remove all stocks, in which you have less trust. Always remember that investing in a company stock makes of a part-owner. So, you must invest in firms, in which you have more substantial confidence
In concluding our suggestion on how to invest in stock market, we have to remind you that it is an excellent decision to start investing in stocks. But understanding the underpinnings of stock trading is not easy. It takes time, attention, and consistency. If you have ticked all these requirements, put your stock investor shoes on!