The desire to make big money or get richer has always convinced the investors to invest in stocks. However, making money in equities isn’t easy, especially if you invest hastily without knowing the nitty-gritty of this volatile market.
The stock market volatility leaves the investors in a dilemma whether they should invest, hold, or sell. Sometimes, it is like a roller coaster ride with all-time highs or record-breaking drops.
Thus, before you jump to the investment and start ploughing money, there are a few things to consider. While there is no sure-shot way to achieve success in the stock market, keeping these points in mind may improve your chances of getting returns. Let’s get started!
Keep Away From The Herd Mentality
Mostly, a buyer’s decision is influenced by the actions of his near and dear ones. The same thing applies to the stock investment too. A potential investor tends to invest in a particular stock if he/she finds others do the same.
However, if you want to save your hard-earned money in the stocks, you need to avoid this herd mentality. Don’t just enter the market to remain in mainstream fashion. Do some research, gather knowledge, study the stock market predictions, and invest in the business you understand.
Educate Yourself About the Stock Market Basics
Before making the first investment, take time to learn the basics of the stock market. Focus on the individual securities you are planning to invest in. Know the key factors that will drive your stock.
Some of the important things you should learn about are-
- Financial metrics, such as ROE, Market Cap, EPS, etc.
- Methods of stock selection or timing.
- Trading basics, rules, and terminology.
- The market’s relationship with the economy, GDP, inflation, etc.
Invest Only What You Can Afford To Lose
The newbie investors tend to invest all the money in a single corporation and end up losing everything. Here, you need to understand that there are risks associated with the stock market investment, too.
Some risks are stock-specific, while others are related to the overall market. Moreover, there are no stock market predictions about which companies will succeed overnight.
Therefore, it is crucial to determine your risk tolerance based on your age, financial stability, retirement goals, etc. It is recommended to invest only your surplus funds which you can afford to lose. Avoid investing all the emergency funds in the market.
Don’t Time The Stock Market
Many investors end up losing their money in the quest to time the stock market. This is something the financial planners warn the investors to avoid. No one could time the market successfully based on the tops or bottoms over the stock market cycles.
Instead, investing small amounts of money over a period of time can help you get better benefits in the long-term. Have patience and invest money in the right shares, while keeping the long-term benefits and a broader picture in mind.
Avoid Leverage As A First Time Investor
Leverage means using borrowed money for the execution of your stock market strategy. Borrowing money from banks or brokerages seems great when the stock market is moving up. But, you need to consider the other side too. What if the stock market goes down?
Not only will it ruin your initial investment, but you also have to pay interest to the broker. Thus, leverage can be good or bad. You can use it once you gain some experience with the stock market and confidence in your decision-making ability. If you are just starting your journey, limit your risk by avoiding leverage.
Apart from the points mentioned above, make sure to keep a check on your investment and review it regularly. Remember, any event taking place in the world may affect the financial market. Also, take note of the financial event related to a particular stock; it also impacts the stock.