Top 10 Golden Rules of Investing in Stock Markets - If you are looking for investments that can beat inflation and give you good returns, starting an investment in stocks can be an option. It’s not a bad idea if you decide to do so and want to go on your own.
If you understand the stock market properly, you can make a lot of money, but if you invest stupidly without understanding the market, you can lose all your money.
Top 10 Golden Rules of Ivesting in Stock Markets
Do not blindly invest money in the stock marketIt often happens that while talking to friends and colleagues you discuss the stock market and how the stock market helps you earn money. Maybe you’ve never invested in the stock market before, but after hearing all about it, you pick up some shares. However, if you’re in the market to get into mainstream fashion, you’re doing it wrong. After knowing the basics about it and according to your financial goals you should invest in stock market.
Stock market is not a money making machineYou must have heard the story of many investors who made their fortune through the market. Many people believe that the stock market is like a money-making machine, which can turn them into millionaires over time. Well, it is true that many investors have profited through the stock market. But it became possible only because he knows the market better and he has made some smart choices after very careful consideration which makes his approach very disciplined.
Many people forget that many people have lost their entire property, while some have even had to sell their personal possessions to recoup their losses in the market.
Read, learn and understand firstBefore making your first investment, learn the stock market and market fundamentals. Your focus should be on the factors affecting your holdings, along with the individual securities you’re investing in and the broader economy.
There are some important areas you should be aware of before going into the market: Understanding of market and its relation with economy like inflation, GDP, fiscal deficit, crude oil, relation of market with value of rupee against dollar. People lose money in the markets because they jump into the market without understanding economic and investment market cycles.
Just invest your extra moneyThe biggest mistake new investors make is investing money they really can’t afford to lose. Investing in the stock market is risky, and that means you can potentially lose everything. As with any investment, there are inherent risks associated with the stock market. There are risks associated with the overall market that you cannot avoid by diversifying your portfolio in the form of systematic risk, while some risks are stock-specific that you can avoid.
You need to decide your risk tolerance keeping in mind your age, financial strength, retirement goals etc. and take risk accordingly. If you want to take risk in the stock market, invest only your spare funds that you can afford to lose. Investing is done to make more money, but don’t invest all your emergency money in the stock market.
Avoid going in crowds
Unlike many investors, you should avoid the herd mentality of being influenced by the current circumstances and actions of your acquaintances, neighbors or relatives without evaluating the underlying stock. Thus, if everyone invests in a particular stock, potential investors tend to do the same. But if you don’t pick the stock after careful analysis, this strategy can backfire in the long run. So, if you really don’t understand about stocks, never make a move. Before investing in a company you should know about your business.It is important to only invest in businesses that are easy for you to understand, especially when you are starting out. Never invest in stocks, invest in business instead. With this Thing and Rules you can easily bind up with your Share Market Analysis.
Buy stocks at different placesNever put all your money in one stock. Build a well-diversified portfolio of stocks that can help you hedge risk and avoid losing money if some stocks don’t perform well. Also, to avoid diversification, increasing the number of stocks up to a certain limit helps diversify the risk proportionately, but beyond a certain number of stocks, your investment may not get proper growth time.
Follow a disciplined investment approach
Most investors try to time the market, which financial planners always warn them to avoid, and lose money in the process. No business or stock market has been able to successfully and consistently time the market while maintaining a top position. You can invest small amount for market average and get returns in long term. Investors who systematically invest money in the right stocks over a long period of time earn excellent returns. Therefore, apart from keeping a broad long-term picture in mind, it is prudent to be patient and follow a disciplined investment approach.
Don’t let emotions affect your investmentSeparate your emotions from a particular stock because many investors lose money in the stock market due to their inability to control emotions. Get rid of fear and greed. Don’t invest in any unknown stocks, it can lead to losses. Control your fear, don’t panic and sell shares at rock-bottom prices.
Have realistic expectationsIt’s not wrong to expect the ‘best’ from your investments, but be prepared to be upset if your financial goals are based on unrealistic assumptions. For instance, many stocks have returned more than 100 percent in recent years. However, this does not mean that you should always expect the same kind of returns from the stock markets. If you feel that you have a large amount of stocks in your portfolio, it is better to switch to good stocks with relatively low prices.
Finally, it is important to monitor your investments and review them from time to time as any significant event in any part of the world has an impact on our financial markets. Also, any news or financial event related to a particular stock or industry affects that stock.