Are you looking for financial security? Do you want your money to work as diligently as you do?
Then stock market is a lucrative option to look for. Worried about the ups and downs of the market? Don’t worry, just follow these step by step process and you would be able to invest in stock market with ease and see your money grow.
- Open an account to trade: First and foremost, you need to open an account to do all your transaction online. This is called the Demat account. You can operate this account like your normal bank account, plus it allows you to trade in the stock market. With this you will be able to buy, sell and monitor your stocks with just a click of a button. For you to trade in the stock market, it is mandatory to have this account. Since this is an online account, it dematerializes paper-based physical stock (equity) shares; making the process of trading hazel-free.
- Understand your investment needs: After you open the demat account, the next step is to make a list of things you want against the desired timelines. Meaning, get to know your financial targets first- like how much money you would need for your retirement, child’s education, marriage, so on and so forth. Set some long term goals such as buying a home or saving for your retirement. Also set some short term goals such as paying off your debts or buying a motor vehicle. This will help you know the exact amount that you expect as your return on investment. Inflation is at its all-time high; so don’t forget to consider this factor while calculating your financial targets.
- Make sure to review your goals regularly. Review your progress on a monthly basis for short-term objectives, and quarterly and annually for longer-term goals. This will help you to make sure that your investments and goals are in concurrence.
- Build a stable portfolio: Discipline is another important aspect for investment. Discipline yourself not just to buy the right stocks and wait, but also to make sure that you diversify your stocks and portfolio to keep risks at edge. Try to look for variety and not quantity. Invest wisely in bonds, stocks, real estate funds, international securities and fixed-income funds.
- Brokers and brokerages: However, if you are new to trading, brokers can make your job very simple. Many companies offer this facility and make the process of investment hassle-free. You need to provide a nominal amount of your profit as commission. Investment is just a phone call away when you make use of their expertise to invest wisely in companies that they suggest. However, if you are just investing at one-time and not trading regularly, keep a watchful eye on the commissions. Brokerages are charged on monthly basis and some charge you only for the transactions that you do. Be cognizant of what you are paying. Cheapest choice is your best choice.
- Systematic investment, regular monitoring: Monitor your stocks on a regular basis. Experts suggest that you look at your stocks once every two weeks. “Relook and reevaluate” should be your mantra for investment. Develop a temperament and discipline to re-look regularly. Market trends and company strategies keep changing over time. This means that your stock prices would fluctuate. Keep an eye on the change in company’s’ profit projections for the year and the next. The company’s performance with respect to its peers on a regular basis is something you cannot afford to miss.
- Determine your risk potential: While stocks allow your portfolio to grow faster, they also pose more risks when compared to other forms of investment. Hence it is very important to know your risk potential before you invest your hard earned money into the market. Most people set the targets right, but will not take the risk potential into account. You risk potential depends on two major factors- your ability to take risk and your desire to take so. Ask the following questions to help understand your risk potential.
- How much liquid cash do you need for any emergency situation that might come up?
- At what stage of life are you in? (Are you near the low end or closer to the peak of your income-earning potential?)
- Have you set up a reasonable time horizon for all your investment goals?
- Do you have enough savings to meet your living expenses for at least a year?
- Do you have a predictable income? Remember, when you invest in some company you are potentially owning some percentage of the company…so think like you are the owner when you are researching and always think about long term investments. Any company which does not satisfy your long term investment criteria is not worth your time and money. Zero down on companies that have good growth potential. You will not make money in a matter of a day or week, you need to invest right and wait for the company to grow along with your surplus funds.By answering these questions, you would now be in a better position to determine how much of risk- tolerance you have to invest your income into the stock market. As a rule of thumb, the younger you are; the more is your risk potential.
8. Learn the market and the companies: Next step would be to research about the various companies and the stock market. Nobody can time the market, but it is definitely possible for you to understand the market. Be an informed investor and keep your eyes open to the current market events and opinions. Read through blogs, magazines and online financial news to keep up your knowledge.