Saving and investing are two entirely different things. Saving is more like the spare money in your income over your expenditure however investing is a way to build wealth over time to meet long-term goals. Sometimes, these investments rise or fall in value over time but prudent investments would allow you to earn a whole lot more than the money in your saving account.
There are plenty of investment options available in the market. One among them is the capital market which is one of the most rewarding and challenging investment options. It is ‘Challenging’ because it is not that easy to choose the right stock to get rewarded.
Many beginners tried to make huge profits in investing in stock market with their limited knowledge but ended up choosing wrong stocks and wondering how to make from it. Added to it the stock market volatility in last couple of years has left investors confused. No doubt, investing can be rewarding but investors need to stick to the stock market basics.
This right here is the beginner’s guide to investing in stock market where we explain some stock investing tips for those beginner investors who are interested in investing in the stock market but don’t know how to do it?
Stock Tips for Beginners
Before you go ahead and dream of making huge profits, here are few stock market investing tips that beginners must follow. Although it is not a shortcut to reap those profits but a in-depth analysis made us discover the some common ground rules/stock investing tips/golden rules, if you followed prudently, may increase your chances to minimize the losses and make decent to good returns.
Say no to ‘herd mentality’ & set financial goals
Generally, it has found out that most beginners take the decision of investing in stock market after heavily influenced by the decisions of relatives, neighbors, and acquaintances.
Think about it!
Is it possible to make profits in share market where everybody is invested in?
Can we all reap profits from a particular stock?
It sounds strange, right? – Well, that’s what happening in these days. So, don’t fall for someone else’s opinion. Avoid the herd mentality and decide on your own.
Also, what are your goals? – Why are you so interested in investing in stock market?
Is it to build wealth? Or make instant profits?
Whatever the reason is, you need to be sure of what you are investing in stock market?
If your goal is to make instant profits then my dear friend you’re not in investing but trading –that is whole different things.
In investing, you need to set long-term goals, if you are considering saving for retirement, college expenses, to purchase home, or build an estate. It also means, when you invest in stock market, you won’t worry over short term volatility. Because like we said, irrespective of short-term fluctuations the long-term investments give much better returns than money rotting in your saving account.
In setting your goals, don’t forget to calculate the amount of money you will need after a certain period of time.
Check your tolerance for risk
‘Risk tolerance’ is a must-do when it comes of investing in the stock market. Psychologically, the tolerance of taking risks is indirectly proportional to the age of a person. It is expressed as a person’s ability or extent of taking risks in less favorable outcomes in pursuit of a more favorable outcome.
The risk tolerance also changed with time, knowledge, and experience. Thus, many investors who gained investing knowledge over time tend to have high risk tolerance however the beginners with their limited knowledge tend to have a low risk tolerance.
But, since a beginner is unaware of the risks associated with the stock market investments, fail to foresee the future losses. On the contrary, one gets easily influenced by the profits and invests most of his/her capital in random stocks.
So, it is recommendable to check on your risk tolerance. By understanding your risk tolerance, you can stop worrying over an investment which keeps you away from sleeping in night.
Learn Stock Market Basics
Before you make your first stock investment, it would be wise to learn the basics first. After all, you won’t be dealing in a ‘stock’ in market but a market where there are plenty of stocks. Besides, the stock market is not that easy that you buy a stock and sell it after sometime, unless you buy an ETF.
Anyways, our point is to make you familiar with the stock market terminologies such as Put-Call ratio, earnings per share (EPS), return on equity (RoE), and compound annual growth rate (CAGR) etc.
It will benefit you to compare the stock of a company with another using these metrics. Also, be familiar with the fundamental and technical analysis to perform in-depth analysis of a company’s stock which you are planning to invest in. Only with a good analysis you can protect your capital from numerous risks of the stock market.
When investing in stock market, make sure you know the difference between the orders. Know the difference between market order, cover order, limit order, trailing stop loss orders, stop loss order, other types of orders and use the suitable one that matches your stock investment strategy.
Also, make sure you have the knowledge of the different types of account: demat account, trading account, and margin account etc.
Control your Emotions & Follow a Disciplinary Approach
It has seen that many investors become the victim of ‘Fear & Greed’ when investing in stock market especially beginner investors who have been losing money due to their inability to keep emotions in check.
Many times, beginner investors lure to instant wealth in bull market that they end up taking positions in the futures segment by investing in stocks of random companies and loss most of their capital within seconds.
In bearish market, the investor caught in fear end up selling all his/her shares at very low prices. If the history has taught us anything then that even great bull runs have shown panicking. It is the volatility that made investors loses big capital even in great bull runs. Thus, it is important to make and follow a disciplinary investment approach when investing in the stock market.
As long as you have patience, disciplinary approach, and picture of your financial goals in mind, you can generate outstanding returns even the odds are against you.
Don’t forget to Diversify
A piece of advice, “You’re a beginner so don’t try to put all your eggs in one basket.”
Means, you’re not Peter Lynch or Warren Buffet so don’t try to copy them. What you need to understand and accept that as of now you have limited knowledge, no experience, and skills needed to choose the right stock that can provide you with excellent returns.
One way to manage risks of losing money is to diversify your portfolio. Diversifying investment will minimize your exposure in the market. Experience investors give preference to invest in stocks of different companies or sectors instead of investing all their money in one company. In that way, if the market reverses or some crucial economic data came that hits the stock market rock bottom then such investors won’t need to worry over losing their entire investment because they’ve invested in different stocks from different sectors. A single bad news won’t affect your entire portfolio.
Hope, this article on “Stock Market Investing Tips” helped you in a way you expected it to be. Nevertheless, if you have any query would like to suggest some additional tips for stock market investing then don’t forget to mention in the comment section below.