12 Things You Should Do When Investing in the Stock Market
Stock market investment is at the centre of the wealth making theory. As you need to put money into stocks or equities to make significant cash in the long-term. If you have a greater level of skill and the needed technical knowledge. Then, you can choose the straight investment route. Equity mutual funds investment through SIPs is an easy way of investing in the stock market.
Stocks are a common path for investment, but it is far from the only alternative. Based on your requirements, earnings, cash access, you can use many investment tactics.
We cannot say that all investments are risk-free. And, investment in the stock market makes a common return of 7% every year after reflation. Thus, making it an engaging investment tactic for the long-term. Even if you’re new to investing or have an interest in finding out how to make cash with the stock market. Then, what to find out before investing in stocks is essential. But, before you begin your stock investment journey, a few points that you should remember:
1. Make a crisis fund for investing in the stock market
As the name implies, a crisis fund is a cash that you keep aside for difficulties. It’s the cash that you can use throughout your hour of urgency. Also, pay for those sudden costs such as loss of a job, medical urgency, personal distress, or even a car failure.
If you are looking to do investment in long-term targets, then you need to create an emergency fund. And, that should be more than 3 times your monthly payments. So, keep this money out in a different account.
2. Have an estimate and find out your cash-flows
There will be a time when you need to follow an effective financial survival. So, then you must make a balance between expenses and savings. Planning your regular finances and understanding your cash inflow and outflow is essential. It can help you propose how much you can manage to invest every month.
Here we have an easy profit/loss formula that you can use daily to find out your fund position is:
Your Income — Your Expenditure = Generated Profit
Here, your whole revenue or inflow is the whole of all the earnings that you make from different sources. These are your job, business, savings/fixed deposit interests, etc.
And, your complete expenditure or outflow are your groceries, rent, bills, EMIs, etc.
When you subtract the whole expenses from your revenue, you will be able to know how much you hold each month or year. And, after assessing this, you may plan where to divide this money. As well as how much amount to invest in diverse investment alternatives.
3. Compensate high-interest liability
First, you have to note that not all stock investments are essential. Here, we are discussing high-interest charges. Say, if you have a personal loan, then it is an interest rate that may be different from 13 to 18 per cent. So, a credit card service provider can charge you an even increased interest rate on the major sum.
It is not sensible to invest if the profit you generate on your investments is not over liability. Say, if your investment returns are 12 percent. And, you are giving 14 percent as interest on your previous debt, then you will get a bigger loss. So, in place of investing, it will be more than enough to use that amount to pay again and make it debt-free.
Before you start investing, try to reduce or remove debt. These can be your increased interest and debt of credit card. And, these interests can nullify your investment earnings.
4. Be practical about profit anticipations and ready for losses too
There are 2 sides to this debate. First, when you put money into equities, you must be ready for losses. The past experience is that even the finest traders receive only 20% of their calls hit on target.
The rest both appear in low returns or losses. When you are going wrong, be fast to leave or exit the stock. Also, do not try to annualize your ROI. Ten per cent returns in a month don’t turn into 120% returns in a year. It doesn’t actually work in that way.
5. Keep a closed eye on the obstacle areas of a stock
In market language, we call these red flags and there are several of these for you to assess. Constant losses, tax-associated queries, SEBI charges, bonds’ default, credit failure spreads. And, audit doubts, amongst others, are all examples of obstacle areas of stock.
6. Ignore the attraction of penny stocks and buying on tips
No, you will not become rich by buying a stock at Rs. 20 and trading or selling it at Rs. 100 in some days. Such examples are generally one-off. More regular than not, penny stocks are worth zero. As the past market experience goes, low crap is crap always.
Always remember that. Do not give too much reliance on market rumours. Almost all have a covered plan and will divert you from your goal. Always depend on your individual wisdom and the analysis of your broker.
7. Take well-versed decisions and do your Investigation
This is a reasonable conclusion to the earlier point. You do not need to be a top-class investigator. Use fundamental standards for earnings, margins, leverage, and performance. They can explain the real story of a company’s trade very well.
8. Define your targets and create plans
A very significant thing you need to do before investing is to call your investment targets. And, make definite plans to reach them. Here, you must know why you are doing investment. It will keep you inclined and on-path to meet your targets.
So, the equity target is the best chance to get a huge return by putting some predefined sum for a set period.
Before keeping your cash in any investment, fix your short-term and long-term targets. And, create plans for how you are going to get them. The target can be individual-specific. Such as planning for kids learning, retirement capital, or purchasing a house. Once you have fixed your target, you can select the best investment alternatives. That can assist you to reach these targets in your specified time limit.
9. Assess your risk threshold profile
Each stockholder has a different risk threshold level. And, that can be on the basis of age, financial situation, choices, etc.
If you are a young individual and own a permanent job. Then, you may be keen to invest in high-risk, and higher return providing options. But, as you grow old, you cannot have a job or main source of revenue. And thus, you may rely on your retirement capital for reaching your expenditures. Here, you cannot be eager to take increased risks. And, select safer investment alternatives.
Before investing in stocks, you must set your risk consciousness. Even if you have a large, medium, or low-risk threshold profile.
As diverse investment alternatives have diverse risk degrees. You can select your investment alternatives based on your profile. Suppose, if you are having a high-risk bearing capacity. Then you can do investments in stocks, mutual funds, and real estate. But, if unsafe investments make you anxious at night. Then better to choose a lower-risk financing option. These are FDs, bonds, public provident funds, etc.
10. Know the investing fundamentals
Do not get in deep water if you do not know the basics of swimming. So, you don’t begin to invest your cash, if you are not aware of the basic concepts.
Before your investment venture, ensure you know what’s the stocks, funds, bonds, liquidity, and volatility. Here, it is not essential that you should be a finance expert or an accountant. But, you should have a good understanding of the business to make smart decisions.
11. Time matters over timing in the market
It has been noticed that reaching the highs and lows of the market is neither viable nor necessary. If you can put funds daily in a good equity fund and stay in the put position for a long time. Then wealth making can be enormous. And, that must be your focus.
12. Make a record of your stocks
Your broker needs to send you an agreement note for each trade you execute. You should check it and document it. It is a record of the business. Also, you should make a record of your exchange prices and times, selling costs and times, profits/losses, supplies, in an Excel sheet. This will not completely assist you to check your investment outcomes and remit taxes. But, will also bring order to your investing strategy.
Nothing takes the position of exhaustive analysis. But, one main method to safeguard your assets is to invest in stocks for the long-term. That is by taking benefit of interests and getting stocks with a demonstrated success record. Except you have the time, unsafe and competitive trading plans should be ignored or reduced.
These days, any person can create a Demat as well as a trading account in minutes. And, then can start investing in the stock market, mutual funds, bonds, etc. But, it is not recommended to do this until you have reached the basic needs and finished some inherent tasks.
References:The simple dollar – 12 things you need to know before investing in-stocks
Investopedia – 5-essential things you need to know about every stock you buy
Tradeb – Things before you start investing
Indiainfoline – 10 important points to remember before making stock market investments
Value research online 10 things a new stock investor needs to know
Disclaimer: The article above does not represent investment advice or an investment proposal and should not be acknowledged as so. The information beforehand does not constitute an encouragement to trade, and it does not warrant or foretell the future performance of the markets. The investor remains singly responsible for the risk of their conclusions. The analysis and remark displayed do not involve any consideration of your particular investment goals, economic situations, or requirements.