Investing in the share market could be a scary thing. The temptation of making big money has always hurled the investors into stock markets. However, doing well with equities isn’t easy. It not just requires discipline and patience, but also a lot of research and a comprehensive understanding of the stock market, among others.
Investing in the stock market could bring great rewards, however, it comes with uncertainty and its own share of risks. A veteran or a naive investor alike could sometimes get intimidated by volatility in the market. However, one should know few basics about investing in the share market before getting started.
1. Investing involves substantial risk
If you go through the news on a daily basis, you would certainly hear about various numbers like Sensex and Nifty going up and down. They might be down 1 percent today or go up 2 percent the next day. That’s quite a movement. You could easily make losses or gains in one day on your investment which you would have done in an entire year. However, the real issue here is that one could have down days more often than the up days. It makes more sense to stay invested over a longer period.
2. Investing in stocks require a disciplined approach
Traditionally, it has been observed that even the massive bull runs have shown stints of alarming moments. Such volatility seen in the markets has unsurprisingly made investors lose their money notwithstanding the massive bull runs. However, investors investing in a systematic manner, in the right shares and stay invested patiently to receive generating exceptional returns. Therefore, it is prudent to follow a disciplined approach and have patience keeping a long-term horizon in mind.
3. Using spare funds
If you wish to take a risk of investing in the stock market, it is advisable to have surplus funds which one could afford to lose. It’s not necessary that you would lose all your money in the current scenario. Your investments could give you big gains too. It is advisable to put only those funds into stocks which you would possibly require after 5 years. The longer the time horizon, the lower is the risk.
4. Investing requires constant monitoring
We all live in a global village. An important event in any part of the globe has a bearing on the financial markets. Therefore, one needs to regularly monitor their portfolio and keep adjusting the same as per the changes in the market sentiments. If you aren’t able to review your portfolio because of lack of expertise or time constraint, then you must seek the help of a financial planner or someone capable of doing it.
5. Don’t worry about short-term volatility
While selecting securities for investment, stick to what you know or what you can understand easily. Stay invested for a longer horizon and stay unfazed by the short-term volatilities in the market. Investing in the share market should be looked as buying good businesses at rational prices. With this approach to investing, one would realize that investing in equity shares isn’t just a lottery ticket but part-ownership.
6. Diversification of portfolio
One of the most common strategies which financial planners suggest for reducing risk while investing in the stock market is to invest in a variety of scripts. In case you buy scrips of 10 different companies in 5 different industries, you would reduce the risk of losing your money. However, you would also reduce the ability to earn high returns as the share price of those 10 companies rising steeply simultaneously is a very unlikely event.
Before taking any investing decision, sit down and have an honest look at your overall financial position, particularly, if you haven’t made any financial plan before. The key to protecting your investments is to stay invested for the longer term by picking stocks with an established success record. Unless you have the time, risky and aggressive trading strategies should be avoided or minimized.
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