Investing in stocks can be a bit tricky especially if you are a novice investor. A disciplined approach, a great deal of research and understanding plus ample of patience are the key ingredients for building sound investment plans. To get started, a new potential investor needs to know the Demat account meaning, how it is different from a trading account, important investing principles and other key essentials of stock investing.
As a beginner, you are likely to get lured by the big returns that people get from stock or share markets. Investment in shares can lead you to earn high profits. But, you need to keep yourself aware of the market volatility attached to them. A lot of risk is involved since shares are subject to wide market fluctuations.
However, stock market offers you good opportunities for growing your money provided you follow a correct and systematic approach.
There is no single best way of generating profits by investing your money in the stock market. But, a well- planned and organised strategy can improve your chances of success.
We have listed a few important rules that shall guide you in taking forward your long term investment plans.
5 Golden Rules of Investing in Stock Market
1. Get Basic Formalities completed:
If you are thinking to get started with your first investments, initially you have to get all the basic formalities done. Few simple things: Get a PAN Card for yourself. This is one of the essentials for anyone to start investing in share market in India. Open a Demat Account and trading account, you need to have one if you wish to invest or trade in stocks.
Wondering to know the meaning of Demat account and how it is different from trading account? Demat account is a place to hold your shares and securities in an electronic format (not in physical form) which you can access from anywhere. Whereas Trading account is used to place orders on stock exchange i.e. buy or sell orders in the stock market. If you want to trade in stock market, you need to have a trading account.
These days it is very easy to open a demat or trading account through online stock brokers by adhering to their basic requirements.
2. Stay informed and updated:
Read a number of investing books, subscribe to informative finance blogs and read good articles on stock market investing. If you have real interest in stocks and are looking forward to earn profits, you will surely enjoy reading every bit about it. Some popularly followed investment philosophies from successful investors may also be an answer to your investing queries.
Make your basics clear and add to your financial knowledge on specific terms prevalent in the stock market like equities or shares, value investing, growth investing, stock trading etc.
3. Try and avoid herd mentality:
Don’t get carried away. Our actions are bound to be influenced by the people around us. But, it is anyways better to base our decisions on our own financial objectives. The general tendency is that if others invest in a particular stock, we also tend to follow the same. This attitude towards investing needs to be worked upon if you wish to earn better returns.
A famous quote to mention here straight from the world’s greatest investor Warren Buffett “I will tell you how to become rich. Close the doors. Be fearful when others are greedy and be greedy when others are fearful.”
4. Step out of your comfort zone:
If you think to invest in the share market, you need to learn to expand your risk horizon. For risk averse investors, there are other investment alternatives. For attaining significant gains, you have to move out of your comfort zone and improve your risk tolerance.
“In investing, what is comfortable is rarely profitable.” as quoted by Robert Arnott. Know your risk boundaries and then take a wise investment decision.
5. Follow a disciplined investment approach:
For a newbie investor or a beginner who is just learning about share market, this whole process seems just like climbing a mountain. However, you can at least make it look simpler by prudently following certain rules. Now, how you approach the share market is one of the key factors that is instrumental in deciding your success over longer periods.
Remember, a disciplined approach can be built over a period of time and experience. You will get to know a whole lot of stock trading techniques and gather expert advice all around. What matters is how early you learn what to do and when to do while investing in stocks.
As such, there is no sure shot formula to gain success in this field. But, by having in mind these simple yet useful Golden Rules of Investing in stock market, you can make yourself ready for the financial world or stock market, to be precise.
Did you find these rules of investing in stock market helpful? Do you have an interest in investing or trading in stocks or shares? Have you opened a Demat and Trading Account? Do you have any valuable experiences and feedback to share? Feel free to discuss the same.