So, you have decided to try your luck in the Stock Market. The first thing you need to do is decide who you are. Are you a trader or an investor? Traders buy stock and are likely to sell it that particular day itself, while investors hold on to their stocks for months or even years. Strategies of trading and investing are different. If you are an absolute beginner, it is always best to keep your stocks for a longer period of time than panic buying and selling. Buying and selling stocks frequently can create unnecessary taxes and brokerage fees. Experts recommend keeping your stocks for at least three to five years before selling. Here are some other factors to keep in mind before starting your investment journey:
Before making your first investment, learn the basics. Understand metrics such as PE, EPS, ROE, etc. Gain some knowledge about the present market and its relationship with the economy. Learn about inflation, GDP, and cruise price variations in different instances. A major part of financial knowledge comes from observation of the past markets and economy, so be patient with yourself. Remember that there isn’t a less risky way to enter the investment world. Nobody knows about the market with 100% certainty. The best way to educate yourself is to get started. One rule in investing is to start early as possible. However, if you want to gain some confidence, you can try trading using fake digital money with the help of a Stock Simulator.
Consistently picking the right investments is the first step toward long-term success as an investor. However, it is easier said than done. The past performances of the stocks can be analyzed; however, anticipating future performances is difficult. These complex calculations require an individual to study a company’s fundamentals like EPS or P/E Ratio. As a beginner, it is recommended not to pick individual stocks. Buying stocks in your favorite company isn’t always the most intelligent way to invest in stocks.
Diversifying your investment portfolio is the best strategy when it comes to reducing the effects of risk on your investments. As an intelligent investor, you don’t want to put all your money into one industry or company. Diversifying helps you combine a variety of assets with different risk levels. Some assets may perform better than others, depending on the market. This means that even if a part of your portfolio isn’t performing well, the impact isn’t much significant. Diversifying can be done in two ways: within and between asset classes.
Avoid Emotional Decisions:
Another rule to keep in mind is to avoid making investment decisions based on emotions. The stock market can fluctuate; therefore, you might incur some losses from time to time. Understand that this might happen, and exercise some control from panic buying and selling along with the masses.