I have been investing for over a decade and have rubbed my elbows with different kinds of investments. Stock investment can be seen as daunting if you are not aware of the market, especially when you are unaware of what you are doing.
Also, the lure of significant return from the capital investment has thrown everyone in the lap of the share market.
The reality is that it is difficult to make money through the share market if you don’t have proper knowledge and experience. It requires oodles of patience and discipline, a sound knowledge of the market, and adequate research to be the king of the Stock market.
Currently, we are the pandemic situation; it has put most of us in the dilemma of where to invest or should sell or buy shares. I am sharing some essential tips for all the new investors to consider before getting into this market.
Be Clear With The Financial Goals
Before you invest in the stock market, a few answers need to be clear for the below questions.
Why do you want to invest?
How long you want to invest?
Yes, you need to clear with your requirements if you want to invest for a couple of months or a few years. These small things make vast differences.
Consider an investment, if you are likely to need your return after a few years, the stock market with its volatility does not assure that all your Capital will be available when you need it.
Your investment strategies depend upon three main factors:
- The Capital you will invest
- The amount of net annual earnings on your Capital
- The number of years you will invest
Do Not Borrow Money to Invest
In the market, banks and brokerage firms can lend you money to invest in stocks, more often 50% of the purchased value. I would advise you not to borrow money.
The reason is very simple; let me explain it to you.
Suppose you needed to purchase 1000 shares of a stock exchanging at Rs. 100 for a complete expense of Rs. 1,00,000, your business firm could credit you Rs. 50,000.
Now, assume the stock moves to Rs. 200 an offer, and you sell it.
If you had utilized your own cash solely, your return would be 100% on your investment, [(Rs. 2,00,000 – Rs. 1,00,000)/Rs. 1,00,000].
If you had acquired Rs. 50,000 to purchase the stock and sold at Rs. 200 for every offer, your return would be 300 %[(Rs. 2,00,000-Rs. 50,000)/Rs. 50,000] in the wake of reimbursing the Rs. 50,000 credit and barring the expense of intrigue paid to the agent.
It sounds incredible when the stock moves upward, yet consider the other situation.
Assume the stock tumbles to Rs. 50 for every offer as opposed to multiplying to Rs. 200, your misfortune would be 100% of your underlying investment, in addition to the expense important to the representative [(Rs. 50,000 – Rs. 50,000)/Rs. 50,000].
Leveraging is the best tool to acquire confidence and experience in your decision-making abilities. You have to limit your risks when you start to make your profit for a longer period.
Take Proper Decisions
Never make decisions in a hurry while investing in a stock market. Your choice will affect you largely, and hence it is reliable to have proper research and guidance before investing in any market.
Most people invest money in big firms, which is not the correct manner to spend all your money in a single firm. It increased your chances of getting into loss and lost all your money.
Always be goal-oriented and plan things accordingly.
Have Realistic Expectations
It is always best to expect a good return from your investments, but you may heading into trouble id you are assuming these expectations based on your past performance of the stock.
Always try to avoid unrealistic expectations, even if you got more than 100% returns during the great bull run of recent years.
The stock market is never the same, it is volatile, and you have to think accordingly.
Understand Your Risk Tolerance, Emotions, and Have a Systematic Investment Approach.
One of the essential factors faced by many investors is the poor understanding of their risk tolerance. Risk tolerance is a strength of mind of how much risk you are willing to take, concerning your investment and the principal amount.
Risk tolerance increases with your education, experience, and income and negatively affected by your age.
Moreover, emotions are the most significant barrier in the stock market. You have to take the decision logically and practically. Many investors lose money as they are emotional and are fearful of losing money.
It is also observed that great bull runs have experienced panic moments. You need to have patience and wait for the terrific returns
These are the most important factors every new investor should consider before investing in the share market. A proper approach and methodology can change things drastically.