Everyone understands the need to invest. However, an obvious question arises – where to invest – should you go for conventional investment, or venture out of your comfort zone and invest in the stock market?
The expectation to earn higher returns attracts investors to the stock market. And the stock market has the potential to offer higher returns compared to conventional instruments. However, generating profits in the stock market is not that easy. It demands oodles of patience and discipline, research-based decisions, and a sound understanding of the markets.
Although there is no sure-shot formula to ensure success in the stock market, you can follow some golden rules prudently to increase your win ratio. Let us first know why investors consider stock market investing.
Compounding comes into the role
Venturing into the stock market helps you to compound your invested capital over the period to meet your financial goals. As a long-term investor, you should not touch your investments and obsess over market trends. Unlike intraday trading, it is a classic approach that requires patience to witness significant returns in your account.
Inflation refers to an increase in the price levels in an economy over a period that diminishes the purchasing power of money. Conventional investments can rarely combat the effect of inflation. Investors should remain invested for the long term to offset the inflation effect. Historical records show that long-term investment in the stock market can provide higher returns.
A range of securities to diversify
There are different types of financial assets in the stock market that you can consider for investments, like debt securities, shares, large-cap stocks, penny stocks, mid-cap stocks, mutual funds, bonds, currencies, commodities, futures & options, and others. It makes it possible to diversify an investment portfolio with a range of securities. If one investment is not performing well, the other can balance it out.
Hassle-free online investing
The stock market operates online, you just need a Demat and trading account to invest in the stock market. Unlike the offline trading system, you need not step out to visit a stock exchange. You can access the share market through Demat & Trading account that not only helps you view share market updates but also maintain a record of all investments in one place.
What is Demat Account: A Demat account electronically stores a variety of your financial investments in the stock market. With most stockbrokers, you can open a Demat account without an account opening fee.
What is a Trading Account: A Trading account is the interface that helps to view live share prices and place buy and sell orders in the share market.
However, remember that trading in the stock market requires you to study several concepts and products. Stock market investments must be based on fundamental and technical analysis.
Rules to Follow for Successful Stock Market Investments
The stock market offers many money-making opportunities. Here are some rules you should consider before investing in the stock market:
● Follow a disciplined investment approach
The stock market is inherently risky due to volatility that may lead to capital loss even when you feel things are under control. Systematic investments in a well-researched stock with a long-term perspective have generated significant returns, historically. Investors should be patient and follow a disciplined approach.
● Avoid the herd mentality
Many investors are influenced by the actions of their friends, relatives, neighbours, and acquaintances. If their friends are considering a particular stock, there is a high possibility that the investor will do the same. It is not the right approach to the stock market. Avoid herd mentality; instead, expand the knowledge about the share market and the different analysis tools to make an informed decision.
● Make informed decisions based on analysis
Research is foremost before picking stocks for investments. Generally, investors look at the name of a company without researching deeply. However, this is not the right way to invest in the stock market. Investigate the financial ratios, know the company’s market value (earnings per share, book value per share), efficiency (asset turnover ratios), leverage (debt-to-equity), and liquidity (current and cash ratios). Compare these ratios between peers of the same market cap and in the same industry.
● Invest in a business you understand
Experts suggest investing in a business and not stocks. You should invest in a business or industry that you understand. Ensure that you know the business model of the company before you invest.
Thus, the stock market is considered the best investment avenue to grow your funds. Your investments can turn to superlative investment returns if you follow the basic rules of investing in the stock market and make informed decisions.
Investment in securities market is subject to market risk, read all the related documents carefully before investing.