There was a time when trading stocks required contacting a broker, either by visiting their office or calling them, after which they would purchase or sell the securities or stock you wanted. Few knew how to invest in the stock market directly. Despite how easy it is to trade in stocks today, most people consider it tedious. Over the last few years, trading has replaced other conventional ways of investment to generate a side income. Those with smartphones can trade as and when they want through various secure apps designed for the purpose.
Stock market investment is not an overnight lottery that can help your funds grow. Not knowing how to invest in the share market does not mean you should avoid it. Here are ten golden share market tips that can help your investing journey. These rules can help you achieve better returns, counter inflation, and accumulate wealth for the future.
1. Understand share market basics
Taking a blind plunge by investing your money in the stock market rarely works. You need adequate research to assess economic trends and factors influencing the stock market. Whether you choose to invest in one or multiple companies, studying the company, its past performance and potential for the future is essential.
One way to do this is by reading the company’s financial performance, balance sheets, earnings per share, profits and losses, and other details. As a novice, stock market investment rules can seem confusing. It helps to educate yourself on financial terms used in trading and by reading relevant articles. The relationship between the market and the economy goes deeper than you think. Global political changes can significantly influence the stock market. Understanding these effects can help predict the performance of your shares to an extent.
Before you can start to understand the rules of investing in the Indian stock market, you need to open a DEMAT account.
- Link your existing bank account when you open a new DEMAT account for seamless transactions
- Use your mobile app or log in to the website to access the account
- Choose your desired stock and price
- Ensure your account has sufficient funds to make the purchase
- Once you approve the purchase, the shares will appear in your DEMAT account after the settlement cycle is complete
Read more: Don’t know the different types of shares? Read more about them here.
2. Long-term strategies
One of the best stock market tips experienced investors will vouch for is focusing on the long run. Many investors use the easy formula of entering when the market is down and selling when it is high. Buying stocks when they are inexpensive and selling them at higher prices is a common and effective method for making quick profits. However, this formula does not always yield the best returns. It is difficult to predict if a stock price has reached its maximum potential in the short run. You might miss out on higher profits if you sell your stocks early. Instead of using the stock market to make quick money, consider it a long-term investment option. Stock markets perform better in the long run and can help you earn stable profits.
3. Never time the market
To get the most out of your stock market investment, focus on the time spent in the market rather than timing the market. The trading ecosystem can be extremely volatile and is sensitive to global changes. The easiest trick in the book – buy low and sell high – is often the most unpredictable.
Multiple factors affect the performance of an industry or company when you study various market trends. Accessing and observing these events beforehand determine whether you make well-thought decisions or emotion-induced spur-of-the-moment trades. If you do your research, choose the right stocks, and remain invested for the long run, you do not have to worry too much about market fluctuations.
4. Diversify your risks
An old saying – “Never put all your eggs in one basket,” applies perfectly to investments. Diversifying your portfolio is one of the most crucial investment rules to grow your wealth. You can do so across small, mid, and large-cap stocks can countercheck market volatility. Small and mid-cap stocks rise well and offer great returns but are high-risk investments. Large-cap stocks are comparatively more stable, offering decent returns. This balance provides stability to your portfolio while ensuring your money grows with time.
Remember to assess your risk appetite before investing in the stock market. It is advisable to put your money on reputed companies with sound fundamentals. It is one of the best strategies to minimise losses in the share market.
5. Avoid the herd mentality
Risk is an underlying part of trading, herd mentality or not. But it is best to avoid investing in stocks in a frenzy just because everyone else is doing it or advising you to do the same. Among many unspoken share market rules is that everyone has different needs and goals. So, set goals of where to invest and how to grow your finances. Study the market regularly to reorganise your goals based on market conditions. The power of discipline is slow but rewarding in the future.
A goal-based investment approach provides a cushion against the sudden volatility of the stock market. Making an informed decision to accumulate wealth ensures you remain calm during market lows. If there is an unpredictable fall in the market, but the fundamentals of the company you invested in are sound, sit back. Prices can rise again, and you can profit in the long run. You are more likely to make rampant emotional decisions when following the herd mentality of investment.
6. Unsolicited share market tips are risky
Not everyone can give you the correct guidance or tools to learn about investing in the stock market. You may look up to friends or colleagues who claim to be ace investors. However, remember that what worked for them may not work for you.
When investing in the primary share market, you’ll come across many tips, some of which might be rumours or coincidences. Especially in the primary share market, this holds. You invest through an Initial Public Offering (IPO), and they allocate shares based on demand and availability. It is best to turn a deaf ear to save yourself from making hasty decisions. Focus on studying market trends and company performances. Let your knowledge dictate your investment decisions instead of phoney tips.
7. Do not invest borrowed money
Using a loan to buy an asset makes sense if it is for a business. Investing in a loan only works when the return on investment is higher than the level of risk. It is hardly ever advisable in risky vehicles like the stock market. Borrowing money to invest can boost your cash flow, letting you buy more and potentially earn higher returns. But it also poses the threat of amplifying losses.
The time you remain steady in the market relates to your portfolio’s performance. When you borrow to invest, repayment stress looms, leading to hastily selling stocks. A reasonable decision is to invest a portion of your income or savings in stock. This surplus money that serves no immediate purpose increases your withholding potential in the market until you are ready to sell.
8. Start small
When you decide on stock market investment, the rule is to start small. If you have surplus money, invest small amounts rather than going all in. Keep sufficient fund for you emergency requirement . Experience and patience can bring more success than investing large sums on whims. Think big and far, but being stringent initially allows you the flexibility to grow from your mistakes.
This golden trading tip is for all investors, experienced or novice, for offline and online transactions. The time spent familiarising real-time trades reduces the pressure of making hasty decisions. In addition, even if you have a slip-up and incur losses, it is not a devastating trade-off.
9. Understand your investment
It is impossible to have in-depth knowledge of every industry or business. So, invest your money in a business model you understand. Investors often decide to buy shares of unknown companies when markets are bullish. Oblivious to the risks of loss, holding shares, in the long run, becomes difficult. The opposite happens when markets are bearish. Watching others frantically sell stocks at any price can lead to impulsive decisions that cost long-term profits.
Unlike fixed deposits, stock market investments need revisiting regularly. Since the market is volatile, prices will fluctuate, and monitoring your portfolio is critical for healthy financial growth. Even if it means letting go of stocks that weigh your investment down. If you are new to the stock market, learn to analyse the most profitable stocks using Excel.
10. Get professional help
When you do not know how to invest in the stock market in India or do not have extensive experience in this space, it could be beneficial to turn to a professional for guidance. Brokers have the expertise and knowledge to guide you through the highs and lows of the market. When selecting a broker or trading platform, do a background check on their reputation and records.
Understand whether they are the right choice to meet your demand and investment goals. When choosing between online trading platforms, software and clientele are factors to watch out for.