Stock market tips for beginners: 5 Do’s and Don’ts of investing in stock market
Investing in the stock market may be a wild trip if you are a new investor but it is one of the easiest ways to make money if you strictly follow the do’s and don’ts of stock market investing. Although a majority of people do what they are not supposed to do in the market because they are lacking financial education, It may be easy but study and a lot of observation are required before you start investing in the stock market. The stock market can be very tricky and you can lose a lot of your money if you do what people around you tell you to do.
Most people speculate on stock price and invest thinking that the price will get high in a few days without any observation or consultation from qualified investors. The first and most important rule for making wise stock investments is to “not speculate,” and instead make purchases only after thorough investigation. Let’s go through the important do’s and don’ts of the stock market before you start investing.
Do’s of stock market investing:
1. Do set a budget and start small:
If it’s your first time in the stock market, set a budget and start investing small amounts only. Start with the smallest investment you can and progressively increase it as your expertise and confidence grow.
2. Do research before investing:
Research is the most important thing before investing in the stock market. You should know about the company’s fundamentals, financial statements, ratios, management, and more before making an investment. Researching the company before investing is important and if you don’t it might make you lose a lot of money.
3. Do invest your surplus funds only:
You should constantly take into account the necessary costs before investing, such as rent, living expenses, insurance premiums, EMIs, etc. Surplus money is what is left over after paying for these expenses. Investing the spare funds is safer because you won’t forget about crucial costs. Stock market investments are subject to market and business risks. You shouldn’t let these hazards alter your way of life.
4. Do get educated about the stock market:
Start learning about the market if you’re serious about making money with stocks. That doesn’t imply that you must pursue a degree or programme in college. The best method of education is self-education. The Internet is filled with reliable market-related information. You can get started with that and you can learn through stock market investing courses as well to get a head start.
5. Do build and diversify your stock portfolio:
Only having two or three stocks is insufficient for consistently making good money in the stock market. You must create a successful stock portfolio of 8–12 stocks that can provide you with steady returns. Holding a variety of assets reduces the risk exposure associated with any one item in investing. Each stock’s risk-to-return ratio is unique. You can create a portfolio with the estimated risks and returns that fit you by holding a variety of equities.
Don’ts of stock market investing:
1. Don’t follow the free investment tips:
It is a bad idea to invest heedlessly in a stock just because other people are doing so. Some people could be drawn to equities they hear other people purchasing out of a herding tendency. Since they feel safer or are afraid of missing out on chances, people tend to follow the crowd. Yet, you should exercise caution and only make investments based on reliable research.
2. Don’t over-invest:
When you trade regularly, the brokerage and other fees must be paid repeatedly. Avoid trading stocks too frequently. Make decisions with confidence and only engage in transactions as necessary. Make your investments in industries that have no correlation at all. Low risk in your portfolio is ensured by investing in more than 3–4 industries.
3. Don’t take unnecessary risks:
It is never a good idea to put all of your money into a hot stock or sector in order to earn a little greater return. Gaining large profits is not more vital than protecting your money. While investing in stocks, you should never take unwarranted risks and your “risk-reward” should always be balanced.
4. Don’t gamble:
‘Investing is not gambling,’ with that being said while making investment judgements, people should put their inclinations towards gambling aside. Investment decisions should instead only be based on reliable information. Don’t purchase any stock at random and expect a two-fold return within a month.
5. Don’t have unrealistic expectations:
Having unrealistic expectations will lead you nowhere. You may get lucky sometimes but in some investment options and may get good returns but these kinds of news circulate very easily and can lead to loss. Do not think that you will be able to achieve the same returns as others who have invested in stocks for many years and may have developed exceptional skill sets. Such results are also possible for you, but only with sufficient training and experience.