Investing in Share Market (aka Stock Market) is a better way to maximize your profits. It’s an investment option that helps you beat inflation and earn returns in long run. Stock market investing is certainly not a gamble or lottery. It’s an instrument for investment and when it comes on investing your hard-earned money you should be wise. A very well-known and simple fact of investment is – Don’t go for the investment product which you don’t understand!
Well, this rule applies to share market as well. Most people lose money in market because they don’t understand what they are doing. People go with a wrong assumption that share market is a source of quick money. Well, that’s true only if you study, learn and understand about market! But if you take short-term hops for making quick money then get ready to pay more :-).
Do your homework – Search for information, understand a few basic concepts, this is the thing you need before investing in market. Do research on your own so you can overcast your fear and be confident about your decision. To make this easy, I tried to put a few basic concepts related to equity investment in the PowerPoint slide.
Now, since you got to know a few basic things (Haven’t looked at the PPT yet? Do it now). The next thing is – How to choose a company for Investment. Usually, it’s not the stock which help you much but it’s the “company” which you are investing. Understanding market, it’s ups and down is not an easy task. Doing your home-work about a company is more important.
All companies’ prices are decided mainly by demand and supply factors in the stock market and are also affected by other factors like economic, political, international, media etc. However, Share prices largely represents companies’ financial position. A company which is in market over a longer period of time definitely reflects its strong position in market and such companies’ share prices doesn’t varies much. Such companies are usually large scale companies and commonly known as Blue Chip companies. If you are a starter, it’s a good idea to start investment with such companies. You can certainly kick-start your investment in the company known to you.
Here are some points which should help with the Investments:
Applying Investment Strategy:
There are basically two investment strategies applied in current market; Growth stock and Dividend or value Stock.
Investing through growth strategy implies investing in companies which have potential to grow into large companies so that it can deliver great profits. However, there’s a risk associated with it as such stocks are most volatile. Most of the time investors lose their money in such type of stocks.
The other strategy used is value stock investing which is much safer than the earlier one. This strategy investment is made in the companies which pays dividends. These companies are mostly blue chip companies which are stable. Therefore, such companies are more appealing to the investors who takes lower risk and want regular income like retirees.
A well mixing of both strategies for long-term can help investors to make a good portfolio with decent returns.
Making Portfolio of Stocks:
A well balance portfolio consist of 15-18 stocks and diversified with different sectors such that if any particular sector is going down the other sector stock can cover the losses. But it doesn’t mean that you need to buy all at once. Making a portfolio requires time and efforts. Studying market and its fluctuations is not easy. Nature of stock market is very uncertain. So taking help and guidance of expert or financial advisor is always advisable before investing.
Your portfolio allocation depends on different factors such as your age, income, time and your risk taking ability. For young investors aggressive portfolio is suitable as they don’t have dependents and can take more risk. But a person with dependents or retirees may prefer to protect the investment and so allocating major portion of portfolio to blue-chip companies will be more beneficial.
Use SIP in Stocks:
The mutual fund SIP method can also be used in stocks. Keep investing a fixed amount in your portfolio on regular basis. Investing lump sum amount may sometimes risky but systematic approach can certainly help to build a good portfolio with decent returns and low risk.
Monitoring and Re-balancing:
Investing and holdings for long-term in shares is always beneficial. But this “buy & hold” does not mean just to hold on for quite a long-term and keep waiting for returns. It simply means hold for a time and sell when the company is frequently non-performing and re-balance your portfolio with changing market conditions. Making frequent (and necessary) changes in your portfolio is always required. There are other factors which may demand to rebalance your portfolio like if your future objectives changes or change in job, age or even in risk tolerance. Please consult a good advisor when your portfolio keeps growing.
Studying, understanding and then investing systematically on regular basis is all you need to invest in market. Ups and downs are inseparable part of it and if you can invest by accepting this part then it will assuredly be the most rewarding and educational experience to you!
That’s it for now. See you soon 🙂
Disclaimer – The views and opinions expressed in this article are those of the authors and do not necessarily reflect any official policy. Examples mentioned are purely examples and are not real-world problems.