There are many investors out there who want to enter the stock market but due to lack of knowledge and sometimes fear have to refrain from entering the market. Let me break this news to you - stock investment is not that difficult as it is made out to be, provided you never lose focus on the word 'investment'. Make no mistake, investing in stock market is risky, but there are ways to minimise the risk. On the other hand, it is also true that stock investment is little different than mutual fund and ELSS where you just have to pay the premium and don't have to worry about it. Equity demands you to be alert, vigilant and proactive. So if you are a new investor, here are the things which you need to know. In a way, it's your checklist to make your stock investment more profitable.
- Know The Market - For the starters, get in the groove of the market terminologies. When you enter the market you will come across various jargons which will baffle you no end. It always helps to understand all the aspects of the market whether you need it or not. The first exercise for the rookie investors is to try to understand the market. Every investor should try to learn about market basics i.e. market capitalisation of the company, outstanding shares, the ratios of the market, etc. There are various sources available to find genuine information about the market and the companies listed on the market.
- Identify Your Financial Goals - One of the most important aspects of investment is - setting financial goals. One should be aware in what direction one is heading. An investor without financial goals is like a ship without a compass, it's heading for a disaster. For the newbies to get investment right, it's critical to have investment goals e.g. buying a home, children's education and marriage, foreign vacation, etc. and to compartmentalise them in the short-term and long-term brackets. Setting goals help you to choose your investment instruments according to your timeframe. For example, if you are investing for a car (short-term goal) you can look at short-term stocks as an ideal option. However, if you are investing for your retirement fund then you can choose a combination of mutual funds and long-term stocks.
- Manage Risk By Diversifying Your Portfolio - Diversification is one of the methods of risk management. It simply means to invest in varied stocks and sectors so when certain sectors are on their downturn some other sector will make for those losses. For example, if you buy stocks of TCS and Infosys (Both IT sector) and if due to some reasons IT industry starts its downturn, it is very likely that both of your stocks will be down. In diversification, instead of buying stocks of the same sector you buy stocks of some other sectors too. So along with IT, you will buy Auto stocks and when the IT is down Auto will make up for the losses or vice-versa.
- Review Your Portfolio Periodically - Investors generally think that long-term investment is something which takes care of itself and doesn't need any assessment. This practice may lead to losses. It is true that when going long you don't have to check the day-to-day updates of the market, but it is important to keep checking the development of your stock periodically.
There are stages of long-term investment. First, to identify stocks which are undervalued and have the potential to grow. Second, invest in the stocks that you have shortlisted and third, to review your portfolio periodically. It is very important to keep a tab on your investment whether they are stocks or mutual funds. The market situation keeps changing from time to time which directly affects your holdings. On several occasions, good stocks go through a rough patch, their valuations drop or sometimes prevailing political or policy changes hamper the prospects of the company. All these things can be found and fixed if you conduct regular reviews of your portfolio.
Source: Niveza India Pvt Ltd.