Stock investments has always been one of the most popular form of investments for new as well as old investors. A stock invested for a long-term has proven to give sizeable return. A long-term secured investment is one of the best ways to generate wealth and keep it stable. Moreover, decreasing fixed deposit rates and increasing real estate prices has made stock investments an attractive investment option. Another benefit of investing in stocks is that you can expand your investment portfolio and incur better returns. However, investing in stocks requires a good amount of patience and research. You can also refer to sites like Bankbazaar.com, which give a fundamental analysis of the companies listed on the markets. Know more about the top stocks list like nifty 100, nifty 50, nifty midcap 100 nifty 200, nifty 500 etc.
Let’s take a look at top 10 golden rules you should follow while investing in stock markets:
- Plan your financial goals
Make sure to have fixed financial goals before planning your investment. Once you have a clear idea of your financial goals take efforts to stick to them. As the stock market is volatile in nature, there will be times when the stock will not perform well. In such situations, you should not panic and sell the stock or quit the market. Also, it is important to allocate the right funds towards different types of investments.
- Learn the basics and research
You should gain at least the basic knowledge of the stock market following which you can go the extra mile and research about it. It will help your investment decisions if you know the basics of how the market works. There are two types of stock investments – long-term investment and intraday trading. To keep yourself updated with the ever-changing market trends, you can keep a track of the current affairs in the world of stocks. There are several books that will help you get a decent understanding about market investment tips.
- Know the company fundamentals
One of the most important rule that you should follow is to learn about the company fundamentals before investing in the stock. You should understand that a stock is essentially a company and therefore you should have a strong reason to invest in the same. By simply following the price trends and the history of the share will not be enough to understand and consider the future growth and potential of the company. Make sure to learn about the company’s profit and loss statement, balance sheet, debt to equity (D/E) ratio, price to earnings (P/E) ratio, and other financial details. Keep a tab on the cash flow of the company as a higher operating cash flow suggests it can sustain the capital investment. You should also look at the product portfolio of the company, its management, and most importantly its balance sheet. At the same time, it is crucial to check if the company is performing better than its peers.
- Invest for a long-term
As mentioned earlier, stock investments have proven to garner high returns provided they are invested for a long time. You should not enter the stock market with an idea that you will make quick money. Once you invest in a stock for a long-term, you should allow it to play its course. One of the benefits of long-term investments is that you don’t need to spend a lot of time daily to monitor the stock. You don’t have to worry about temporary and cyclical fluctuations. If a company is doing great business, it will automatically reflect on the share price.
- Diversified portfolio is the key
One cannot stress enough on importance of having a diversified portfolio. You should not put all your money in one stock and instead spread it among several stocks. Ideally, you should select good companies from different sector based on their performance. If you put a large chunk of money in one stock, it increases your risk of losing the money if it does not perform well. A diversified investment portfolio can save your stocks from sudden market variations. The next step after building a diversified portfolio is to make sure to monitor your stocks and buy or sell them accordingly as per the market trends and company performance.
- Don’t follow the herd mentality
A common mistake most of the new as well as old investors do is to buy or sell a stock because most of the people are doing it. You should not follow the herd and take investment decisions. It is important to evaluate the current market trends before investing.
- Invest only surplus funds
You should also not go overboard and invest your surplus funds in the stock market. It is advised to understand your daily financial needs and keep enough amount in hand. As investing in stock market is full of risks, it is safe to use the surplus fund and keep the required investment safe. You should also avoid to invest your emergency fund in the stock market.
- Stay away from market gossip
You should careful and not fall for stock market tips that make rounds SMS, instant messaging or email. Taking investment decisions based on market gossip has a high risk of failing. It is important that as a new investor you stick to your investment plans and don’t change it based on a market gossip as there is a high chance you may end up losing money.
- Have realistic expectations
At the end of the day, you should have realistic expectations from your stock investments. Thanks to the volatile nature of the stock market, there is a chance you could gain or lose a substantial portion your stock investments. It is better to understand the market before having huge expectations from the stocks.
- Consider seeking professional help
It is completely normal to take professional help of a financial expert or advisor when it comes to taking investment decisions. Taking help from a professional will definitely help you have a better understanding of your financial health.
You need to take smart decisions and follow a disciplined investment approach if you want to be a successful investor. It must be noted that stock investments gives investors an opportunity to create wealth in the longer run. Hope all the aforementioned points will help you better with your decisions related to stock investments.