For the longest time, the middle class of India has been keen to invest in gold and real estate. However, with the recent shift in trend, more and more Indians have started to invest in the ever-growing stock market. The fact that investing in stocks can help one gain a high rate of returns.
One could see the shifts in the recent behavior in the society, people have started openly talking about How To Invest In Stocks For Beginners. There has been a significant increase in the content available in terms of investing in the stock market, thus reconciling with the reports that there has been an increase of almost 40% in the number of Demat accounts in the Indian market.
Just like two sides of a coin, one has to make sure to implement some basic practices that make the risk of market volatility negligible, also if you want to play safe, then you can go for some financial advisory services. So here are some basic tips on How To Invest In Stocks For Beginners.
How To Invest In Stocks For Beginners?
Learn about the market – For a beginner, it is imperative to understand the risks associated with the stock market. The stock market is volatile and therefore poses a risk of wiping out the investment made by an individual. Therefore, one should start slow.
Learning to invest in a process, therefore it is suggested that one starts with investing the amount that they can afford to lose because it takes time to understand the market and to develop the acumen and mindset needed in the market. If you are an underconfident beginner we recommend you enroll in one of the Best Finance Courses.
Strategize your investment – There isn’t just one way to invest in the market, one could take risks or could be risk-averse according to their liking. Commonly, there are two strategies followed by the people.
Intra-day trading – This refers to the trading where one does not hold equity for more than a day. This uses short-term price fluctuations in the market daily to turn the invested amount into profits. The market runs not only through the market forces of demand and supply but also external factors like rumors, hearsays, or new information.
Value investing – This refers to a type of trading where one invests in stock for a longer period, In hope of earning a significant rise in the value as the company grows. One of the greatest investors, Warren Buffet often suggests value investing is the way to invest.
Therefore, one should make clear choices of the way they would like to invest before moving forward with the investments. Learn Share Market Investment Tip here.
Find a balance between having a diversified or focused portfolio – Portfolio refers to the investments made by an individual. It is suggested that one strikes a balance with their portfolio. It is advised that traders maintain a diverse portfolio, as with diversification one does not lose much when a sector or a company goes through negative developments.
However, it is of great importance that one does not make their investments too diversified as this makes it difficult for the traders to track their portfolio and thus lose on their investments if the sectors are not doing good in the market. One should be able to recognize their mistake and correct their investments over time. Click here to know more about Portfolio Management.
Know the business and external environment: As discussed earlier, the value of stocks is affected not just by the business but also by external variables like political environment, international affairs, or geopolitical issues. Therefore, one should keep a track of such affairs. Some of the variables that could affect the market are.
- Company’s performance: One of the ways, the markets get to know about the performance of the company is through quarterly reports. The reports help the investors know if the company is fulfilling its goals or not.
- Geo-political issues such as Brexit, Elections affect the market, and as an investor one should be risk-averse to such situations.
- External issues such as pandemics, epidemics, and Terrorist attacks affect the market negatively.
Investors are scared of losing their investment over external factors, therefore it is suggested one properly studies the environment before investing.
Basic financial knowledge – One should have basic knowledge of not just the market but the forces that run the market. Eventually, it all ends up being a numbers game, therefore there are 3 major ratios that all the investors should know before getting into the game.
- Debt to Equity ratio: This ratio tells about the company’s investments. Investing in a company with a low debt to equity ratio is suggested because the company is not dependent on its shareholders for its financing and is self-financing using profits.
- Return on equity: This ratio measures a company’s ability to turn its assets into profits for the shareholders. Companies that are better at turning the shareholder investments into profits – and hence better dividends for the shareholders – are a good financial bet.
- Price to earning (P/E): This ratio tells you how much you need to invest in a company to receive one dollar or rupee of that company’s earnings. This ratio can help new traders separate the wheat from the chaff and know if investing in a particular stock is a good idea in light of that stock’s price and historic return value.
In conclusion, it is suggested that one learns the know, how of the market and the forces that run it before getting their hands in the market, such is one of the most important lessons that the new investors could get before getting into the market.