The equity market is an intriguing place. It is one of the many tools used by investors to create their corpus. A good equity investment may help one earn profits and a wrong one can cause one to lose a lot of money. Most people look at equity trading as if it were a gamble, but the fact of the matter is that if one does their research and invests in shares prudently, there are very rare instances where one can lose money. If you have been contemplating entering the stock market for a while now, here are a few tips that should help you make profitable investments.
Start by defining your investment goals and time horizons: Most people enter the equity market in India because they believe it is a quick-fix, which can help them create their wealth. While it is true that you can expect profits from investing in the stock market, one must ponder about the method of investing. You must try to define your investment goals and even consider a specific time-period during which you can afford to stay invested. Dwelling upon the reasons and time-period of your investment can help you realize your short and long-term financial goals and guide you to make your investments accordingly.
Do your research: It is very important to have an understanding about how the stock market works. One needs to ensure that they are well-informed about the functioning of the market. Ensure you gather as much information about the benefits and consequences of investing in the share market. You need to acquaint yourself with the various share market jargons and trends. You should know the difference between trading on the NSE and the BSE. You need to learn how to identify a good business from an under-valued one.
Start with small amount investments: Many investors are swayed by beginner’s luck when the first enter the equity share market. This means, that most investors end up profiting from their first few investments. As a result they start believing that they have mastered the art of investing and start investing large amounts of money. It is necessary to first test the waters. Ensure you start with investing smaller amounts of money and then gradually increase your investment amounts as you gain more knowledge about how the share market functions.
Define your risk appetite: Every investor has a different appetite for risk. New investors often struggle with identifying their risk appetite. What this means is that you should have a clear idea of how much risk you can endure on your investment. You have to understand that the equity market is quite volatile and that not all investments can prove profitable. Stock prices can be impacted due to several reasons that may not be in the control of the investor. Your risk appetite should be in sync with your financial goals. You should define a risk-threshold. Remember that high risks can reap high rewards, but this saying works only if you have research backing your investment choices.
Seek help form a financial advisor: Many people tend to make their investment decisions based on tips provided by friends, family members and colleagues. Such people are often disappointed when these tips fail to provide the results they had expected. When it comes to the equity market, it is better to take tips from a financial advisor who has knowledge about the various companies listed on the stock market. Financial advisors are well versed with the market dynamics and can provide valid reasons when they provide investment tips.
Diversify your investments: It is very important to diversify your investments. Many investors make the mistake of investing only in one particular sector that may be proving profitable; the pharma or banking industry for instance. They may own stocks of several different pharma or banking companies. However, should anything huge happen even in one of the companies in either industry, the stock prices of all companies in these sectors may fall, which can result in the investor losing a lot of money. When you diversify your investments, you are mitigating risks. Diversification protects your investments from potentially huge losses.
Know when to book profits: Greed can be a dangerous thing. You may be watching a stock perform brilliantly and may be tempted to invest more money into it. But a wise investor is one who knows when a stock has reached an all-time high and understands that it is time to exit it. Ensure you exit the equity share market when you have booked the expected profits. Just because a stock is performing well today, there is no guarantee that its price will continue to rise. Just book your profit and invest it into another potentially profitable stock.