Things to know before Diving into Share Market

If you are thinking of investments that could beat inflation and also give you good returns, one option might be to start investing in the stock market. If you have decided to do the same and go for it all by yourself, it’s not a bad idea. The stock market, when properly understood, can help you make a lot of money, but you can also lose all your money if you are tempted to invest randomly without knowing the nitty-gritty of the market.
Therefore, there are a few things you must know before you dive into the share market. Here they go:

  • Never jump blindly into stock markets
  • Stock market is not a money-making machine
  • Educate yourself, handle basics first
  • Invest only your surplus funds
  • Avoid Leverage
  • Avoid herd mentality
  • Diversify but refrain from over-diversification
  • Don’t try to time the market, follow a disciplined investment approach
  • Don’t let emotions impact your investment
  • Have realistic expectations
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The choice and final decision to pick the right investment among the plentiful options is largely dependent on the possible exposures to risk, expectancies of a definitive return, availability of funds, sources of income, liquidity of the investment instrument and the time period for which the investment is being made. Traditional investors do consider such factors before taking their final call to invest in a stock, fund or any other tradable security. The conventional form of investing doesn’t differentiate on the nature of business, the vision of the enterprise and the short-term goals and objectives of a firm.To understand how to invest, one must know where he/she can invest, as different investment strategies involve different methods of investing.

Hi Tarun,

Very good info suggested for beginners of share marketing investment. It’s a clear explanation of what are the steps we know before invest in the share market.

The share market is a challenging and interesting platform to earn high returns. Here are a few things you need to know before you dive into the share market:
  1. Acquire basic knowledge - It is important to know how the stock market works, how the company stock prices change, and how political and economic factors influence the market. It will help you make proactive and smart decisions.

  2. Decide on your risk tolerance levels - Stock market volatility is common and has an inherent risk. So, before you invest, understand how much money you can afford to lose and the extent of risk you can take.

  3. Diversify your portfolio - After gaining a good amount of knowledge, you have to decide on your portfolio. It will be based on the amount of money you are planning to invest. When you build your portfolio, try to diversify it by purchasing stocks from different sectors. It will help you from making excessive losses if a particular sector falls due to some reason.

  4. Keep yourself updated with the News - The stock market varies based on world developments. Keep yourself updated with the happenings in the global world to understand how it can affect the stock prices to make well-informed decisions.

  5. Stay focused - As the stock market keeps witnessing fluctuations in price, you should stay calm and stay strong mentally to boldly overcome the risks. Have realistic expectations and stay focused to achieve them.

Among various investment options available, the stock market offers one of the best potential returns to investors. However, investing in stocks can be risky since the price of a share depends upon its demand and supply, which is governed by the overall investor sentiment. Hence, it is important to keep certain things in mind before you dive into the share market.

• Know yourself – Each individual has a unique investment requirement based on his/her financial goals, investment horizon, and tolerance to risk. Before you start investing in stocks, it is important to define these three aspects:

o Financial Goals – While we all desire high returns on our investments, knowing exactly what we want to achieve can help us choose investments efficiently.
o Investment Horizon – When you invest in shares for the long term, the type of companies you choose will be different compared to medium or short-term windows. Hence, knowing this is important too.
o Risk Tolerance – Returns are usually directly proportional to risks. In other words, higher risks = higher potential returns and vice versa. Know how much risk you can take without panicking.

• Avoid emotion-driven investing – Whether it is a market crash or a sharp rise, it is easy to get driven into selling or buying because you allow your emotions to make decisions for you. This is usually counterproductive. Always keep your focus on your investment plan before making any decision.

• Diversify – Don’t put all your eggs in one basket. Diversification is the key to successful investing as it allows you to minimize losses and ensure steady returns.

• Don’t borrow to invest – If you use borrowed money to invest, then you can be left with a loan to repay after suffering a loss which can be detrimental to your financial health. Also, ensure that you use the leverage provided by the broker judiciously.

• Avoid following investment advice given on news channels or websites blindly. Research before you invest.

• Don’t try to time or predict the market

• Keep your expectations realistic. While every investor would love to have a multibagger stock in his/her portfolio, there is no formula to finding such stocks.

• Ensure that you monitor your investments regularly.

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Hi Tarun,

Very good info suggested for beginners of share marketing investment. It’s a clear explanation of what are the steps we know before invest in the share market.

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So, any other tips? In general, I can not find topics with questions and answers. Help.

What do you need to know?

You have mentioned some of the most important points and good job on that front. Though would like to add that one also needs to avoid derivatives for at least the first few years. Derivatives can easily lead to wealth destruction in minutes if one is not careful as people often trade in it hoping to multiply their capital in a single day.

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I feel a little insecure about this topic, so I would just like more information.