If you're thinking of investing in the stock market, you might be feeling a little intimidated, realizing that there's a lot you don't know. Making money in the stock market may not always be straightforward. Profitable investing not only requires patience and discipline, but also research and a sound understanding of the market, economy, and other factors that influence stock prices.
Although no single formula has yet been discovered for guaranteed success in stock markets, here are some golden rules which, if followed prudently, will likely increase your chances of making greater profits:
Power of Compounding
You may have heard this a million times, but it's important that you truly internalize it in a way that changes your behavior and reorders your priorities. You will end up far richer if you begin investing early. It's all due to compound returns, and the outcome differentials are staggering.
Typically, the longer the investment period, the higher are the returns.
For example, a 20-year-old who jumps straight into the workforce and saves Rs.5,000 per year, earning long-term average rates of return, could end up retiring with the same amount that a 38-year-old can achieve by saving more than Rs. 35,000 per year - It all boils down to using the time value of money.
Clearly, regularly investing a small amount consistently over a long period can trump the returns of a larger investment over a shorter time frame.
Tailor Your Unique Portfolio
People tend to get emotionally involved in their investments and are sometimes too attached to a specific legal structure, methodology, or company. They lose their objectivity and forget the adage, "If it looks too good to be true, it probably isn’t."
Your portfolio should take on the imprint of your personality and unique situation in life. Your portfolio depends on many factors, including your personal goals, risk tolerance level, objectives, resources, temperament, psychological profile, tax bracket, willingness to commit time, and even prejudices.
Always remember that your portfolio must serve your life goals. Your investment can help you meet your life goals- saving for kids’ education, buying a house, car or saving up for retirement.
Be prepared for the risks:
All investments involve some degree of risk. If you intend to purchase securities - such as stocks, bonds, or mutual funds - it's important that you understand before you invest that you could lose some or all of your money.
If you wish to be a long-term investor with a reasonable life expectancy, you can face drops several times, you may watch your Rs.500,000 portfolio decline to Rs.250,000 even if it is filled with what you think are the safest, most diversified stocks and bonds. But given that the economy, governments, and humanity, in general, make positive progress, you are likely to see unparalleled returns on your investments in the longer term.
If you want to do as well as you can in stocks investments, keep learning. Obviously, you'll need to learn a lot at the beginning, even the best investors tend to keep reading widely and deeply.
They read annual reports, they read financial news, they read books about great businesses and business builders, and they read about great investors.
Not only this, proper research should always be undertaken before investing in any stock to evaluate its fundamentals. Many investors usually go by the brand value of a company or choose to invest in the industry that they belong to. This is, however, not always the most efficient way of growing your money. With active research, curiosity, and financial know-how, your chances of finding and investing in multi-bagger stocks yield big returns.
Appoint a Financial Advisor:
Over the course of the last few decades, behavioral economics has shown that people often play fast and lose with their investments. Their investment decisions are often influenced by those in their social circles. Alternatively, people end up falling prey to irrational cognitive biases.
Sound stock market advice from a reputed stock market advisor can be your true guide through such a confusing landscape. Deeply researched market reports and well-grounded investment calls can stop you from redeeming your investments in a grip of panic.
Starting to invest in the stock market can be one of the most important things you ever do with these time-tested lessons, and the sooner you start, the better. ShareIndia is one of the largest stockbrokers in India and provides new age, high tech platforms for trading on the web, mobile, and desktop. You can open your account online with a 100% paperless onboarding process, and start investing for your dreams at shareindia.com.