Ever thought about investing in the stock market? It can certainly give your finances an edge as long as you know the basics. Here’s what you need to know!
Many things tend to change once you hit adulthood. That first job, the pressure to perform well, showing your parents that you were worth all that investment, living up to all those fancy degrees and much more. But, hey, that’s life!
Once you start earning, you indirectly take up an important responsibility. It’s more than paying your own rent without borrowing money from your parents. It’s the responsibility of securing your future, financially. It’s no longer fair to depend on your parents. They need to save for their retirement and you need to think about your future too. All you need to do is understand your needs and invest in the right places.
Additional Reading: Your First Steps To Investing In The Stock Market
Taking the first steps towards investing is never easy. So many options, so many policies, so many people to offer expert opinions. You’re likely to get confused and make the wrong choices. That’s why you have us.
Here’s what every newbie must know about investments:
Investments help you keep pace with the inflation rate
To ensure a financially safe and sound future ahead, your money must grow faster than the inflation rates. However, that won’t happen if you simply let your money sit idle in a Savings Account.
You’ll have to find new ways of keeping up with inflation. Investments are exactly what you need. Unless you were just born with a silver spoon in your mouth, investing in the right places is your only way to keep up with the price hike.
It’s a risky business
Although investments help you create an emergency fund or save for your retirement, they’re always risky. It’s up to you to take well-calculated risks instead of choosing to do things that you’re unsure about.
Since you’re just a beginner, it’s advisable to consult someone with some solid financial knowledge. After all, you want to minimise risk and see your money grow. However, there are two sides to every coin.
Investments come with great benefits in the form of monetary growth. That’s the good side. The ugly part? The risk that comes along with it. But you can minimise this risk by taking some well-informed decisions.
Buying a stock means buying a small part of the company
For those of you who have absolutely no clue about how stocks work, you need to know this. When you buy stock, you actually share a tiny bit of ownership of the company. In other words, you become a stakeholder.
You can monitor the performance of your stock’s portfolio
Did you think that investing in stocks is risky because you can’t find out how your stocks are performing? You’re wrong! On the contrary, you can continuously monitor the performance of your stocks and make changes to your portfolio.
Diversifying is the key
When it comes to investing in the stock market, diversification is a crucial factor. Since you basically invest in shares of different companies, the same market fluctuation is less likely to affect all your shares.
For instance, if you have a good balance of shares from the banking and oil sector, and the banking industry sees a low, you at least have a guarantee that the oil sector won’t get affected in the same way. You basically reduce the risk of facing a loss.
To reach your long-term financial goals, you need to pay attention to diversification. Before you hurry things and start to over-diversify your portfolio, stop! Over-diversification is no good either! You need to strike a balance. That’s the key to higher returns and lesser risk.
The ROI (Return On Investment)
What’s that? It’s a figure used to compare the profitability of different investment options. ROI helps measure the amount of return you can expect on an investment relative to its cost.
To get a clear idea of how well your investments are doing, you can do some math and figure the ROI out. Divide the gains on your investment by its costs. That’s it! No complex algebra involved.
There are highs and then there are some lows too
Like we mentioned before, investments can prove to be slightly risky. No matter how careful you are or how careful you are with those calculations, there are chances that you’ll face a loss. But, as long as it’s all under control, you’re okay.
If you face some losses, that shouldn’t stop you from investing. It’s completely okay to fail once in a while. You just have to keep going.
Starting early has its perks
If you’re young (in your 20s or 30s) and you’re thinking of investing in the stock market, you’re going well. As you explore more about the ups and downs of the market and more about the factors governing the markets, you start getting better. Once you become a pro at it, things only get better. Your expertise significantly reduces the risk of making a bad investment choice.
Looking for a short-term money-making scheme? Try somewhere else, maybe.
If you’re investing in the stock market just to fulfil your short-term goals, think again. If you’re looking to make a quick buck, investing it in the stock market isn’t the smartest thing to do. After all, stock markets are risky. If the market crashes, you might not be able to recoup your money.
Can’t deal with the number-crunching? Get an expert on-board
If you don’t feel confident risking your money, you can always rope in an expert. They can do the math and number-crunching for you. Under their guidance, you can do much better. Look for the right people and loop them in.
Additional Reading: Investment Tips: Should You Consider Stocks Or Mutual Funds?
We hope that cleared the major part of your confusion about stock markets and how to begin investing. While there is certainly more you can learn, it sure is a good start. Now that you’ve got your basics in place, you can focus on gaining more insights and knowledge.
Psst…Fixed Deposits still continue to be one of the best and most reliable investment options. What are you waiting for?