If you are thinking about trying your luck at the stock market, there must be some doubt lingering in your mind whether to invest or not. The potential of a large economic dip due to recent circumstances also doesn't help with the uncertainties. But you are not alone in this, even the seasoned investors are thinking twice about taking every step.
If you are a beginner at this whole stock market scenario, there are some basics that you should know and follow. Otherwise, you might end up losing everything instead of making any profit.
What Is A Stock Market?
A Stock market is a virtual market place where publicly held companies buy and sell their shares. Companies sell their shares to the public at certain prices. On the other hand, the public tries to make a profit of it by selling back to the market when the price rises. Companies make capital to expand their business through the share market. The public takes part in sharing the profits of the companies by buying their shares.
In this article, we will run you through some of the basics that you should consider before you invest in stocks. Let's get on with it!
1. Know Your Options
While the stock market is the most hyped method of investment, there are other options too that you can consider. If you don't feel safe with a stock market investment you can consider investing in real estate, bonds, or buying something precious materials. Deciding which one will be the best option for you depends on how much money you make and how long you can hold off from accessing them. Before you invest you should be absolutely confident about your decision.
2. Know the Stock Lingo
There are terms and lingos reserved only for the stock market. You should learn the basics of the stock market, terms like market cap, dividend, bid, earning per share, and learn to analyze stock teasers. StocksReviewed articles on teaser stocks can be a good start for you to know about the concept. A general understanding of the economy, inflation, fiscal deficit, GDP might also be helpful.
3. Map out Your Financial Situation
The stock market doesn't guarantee 100% success. You might have to lose sometime, even hit some big-time loss. You need a proper financial plan and backup so that you can withstand those financial blows. Before you invest, you should have a clear understanding of your financial situation and make a plan likewise.
4. Set a Threshold for Risk You Are Willing To Take
There is always a certain level of risk involved in all sorts of investments. Investing in the stock market is not any different, the shorter your investment time is, the more your stakes get high. But it is also true that the higher the stakes the more chance you have of a big win. Before you take such a risk you should evaluate the threshold of risk you are about to cross and how you plan to recover from the loss.
5. Be Prepared For Investing Long Term
If you are going to invest for only a short period, the stock market is probably not your field of investment. There are the usual cases like taxes that will not let you make much profit with short term investment. With a long term investment, you can remain unaffected by the short term high and lows. If you can get your timing right you can make large profits from long term investment.
6. Don't Get Sucked In the Trap Of Herd Mentality
Going with the flow is a human nature that we can not shade easily, even if it costs us. Don't buy stocks being influenced by public tendency. Copying other investors without judging for yourself can make you crash and burn in no time. Contradicting herd mentality may seem daunting but it will do you good in the long run.
7. Research the Company You Want To Invest In
Don't invest in stocks, invest in companies. You should invest in companies that you know of. You should have a clear concept of their business and operation method. Researching the companies will let you weigh your options and find the best investment.
8. Spread out Your Investment
Concentrating all your investment in one company is not a good idea. Even if you are dead set on a company's success, only the future can tell how it will hold. It is wise to spread out your money in several companies so that you can have a backup if one of them crashes. Instead of investing all in one place, invest in several to minimize the risk of plummeting.
9. Tame Your Expectations
Most of us have unrealistic expectations of the stock market investment. You have to remember you can not make money overnight in the stock market. It requires a considerable amount of time and dedication to draw out a profit. If you are not fazed by the short term high and lows and can keep your expectations at check you can go for stock market investment.
10. Say No to Leverage If You Are Not a Seasoned Investor
Using borrowed money to buy stocks when the price is good may sound nice. Banks will even lend you money to buy stocks. The problem arises when the price plummets and you have to pay the interest on top of bearing the loss. Only veteran investors should try leverage if they can maintain it, otherwise, it is a strict no.
On a final note, Investing in the stock market is not a sprint that you get to run for a short time. It's a long term marathon and you have to hold your pace to finish it. You need to have a lot of patience and nerve to deal with stock market fluctuations. Be cautious while you first venture into the stock market but you can take some calculated risks as you gain experience. If you are still unsure of investing in the stock market, try consulting pro investors or a financial expert to shed some light on the matter. You are sure to get some insight.
* This is a contributed article and this content does not necessarily represent the views of realtytoday.com
