This article provides 10 things you need to know before investing in stocks in India so that you can make your money work harder while keeping your sanity intact.
When you invest in stocks in India, you must know how to manage your expectations and anticipate the consequences of your investment choices.
1) Always have a plan
One of the top investing tips for new investors, as well as one of my personal favorites, is always having a plan.
If you’re an experienced investor and are reading this because you want to brush up on your methods and make sure your strategy is on point, I encourage you to ask yourself these 9 questions before investing again:
What am I buying?
Why am I buying it?
When do I want out?
How long do I expect it to take me to find an exit?
How will I know when it’s time for me to cash out?
Do I have a backup plan if things go south quickly?
Am I fully aware of what could happen?
Am I okay with that possibility and still willing to move forward with my decision?
Can I afford to lose my entire investment?
2) Start small
When you’re first starting out, it’s best to start with a small amount of money.
For example, if you’re investing your entire life savings on day one, you may be setting yourself up for failure before you even get started.
With small amounts of capital at stake, your portfolio is less likely to suffer catastrophic losses and you’ll be able to buy more stocks.
Over time, these small gains will add up as long as you don’t panic and sell during market dips.
3) Don’t expect quick returns
The stock market isn’t a get-rich-quick game.
Even if you stick with blue-chip companies, you’re unlikely to see immediate, life-changing gains.
This is more of a marathon than a sprint: Over time, you will witness your investment grow.
However, if your main goal is to make money quickly, then investing in stocks might not be for you.
4) Be patient
Try not to get discouraged if your picks aren’t performing up to expectations.
The stock market has a bad rap for being dangerous, but in reality, it can be a good way for you to grow your wealth over time.
5) Don’t panic if you lose money
Everyone loses money sometimes—even professional investors.
That doesn’t mean you shouldn’t invest, but it does mean you should have a backup plan.
If your investments are all stocks, consider keeping three to six months of living expenses on hand as a kind of rainy-day fund for tough times.
Ideally, you’ll never have to touch that money, but having it could make all the difference if things take a turn for the worse.
In case you do lose money, don’t panic.
Recognize that investing is risky and losing money happens from time to time.
Try not to let it shake your confidence or derail your larger financial goals or strategy.
6) Check your facts
This may seem obvious, but before investing in stocks it’s important to do your homework.
In fact, it’s a rule of thumb that many investment advisors abide by knowing what you own and why you own it.
The market is too volatile and unpredictable for beginners, who can quickly lose their money if they make rash decisions based on quick tips from social media posts or online articles.
If you want to know how to invest wisely, know that basic research goes a long way.
7) Trade with a long-term perspective
While stocks are a great way to build wealth, it’s important to trade with a long-term perspective.
If you try to outsmart others and trade too frequently, you’ll increase your trading costs.
A recent study from Financial Engines found that frequent traders typically spend $1,000 more per year on transactions than investors who buy and hold for at least five years.
That can add up quickly.
It might be tempting to try and make money by picking individual stocks or through day trading.
But if your long-term goal is financial freedom, you should probably steer clear of these high-risk strategies.
8) Check your investments regularly
Check your investments regularly.
Many brokerage firms make it easy for investors to pull up their accounts and check on recent activity, but it’s still important to stay up-to-date with your holdings.
This way, you can identify any patterns or areas of concern and make changes as necessary.
It’s also a good idea to check on your holdings right before you are going to purchase or sell stock.
This will ensure that you have all information at hand when placing an order, rather than finding out later that there was something else you should have done first.
In general, keeping tabs on where things stand is important if you want your investment portfolio to continue moving in a positive direction.
9) Keep your emotions out of it
The first mistake people make when investing is letting their emotions get involved.
It’s natural to want a quick return.
But it’s important to remember that you are putting your money into stocks for long-term growth.
These types of investments won’t give you a massive initial payout; however, they can help ensure that your retirement fund will be well funded years down the road.
If you try and rush things with stocks, it’s easy to lose track of your goals and wind up with a portfolio that won’t stand up under pressure.
10) Learn more about stocks in India as you go along
As you start investing, keep a journal of all your trades and learn as you go.
Many successful investors, including Buffett, look back on their earlier years of trading with a critical eye and improve as they go along.
That being said, if you’re not sure about how your stocks are performing don’t be afraid to contact an advisor for help or information.
It’s far better to get guidance than make hasty decisions that could hurt your portfolio.
And remember, just because someone wants your money doesn’t mean they know what they’re doing. Do due diligence before opening up your wallet!