Many people are wary to start off their financial career with investment in the stock market. And why not? If stock markets have made a few people millionaires overnight, it also has to tell a great number of riches to rags stories. So what can you take away from this? Should you altogether abstain from the stock market? Or should you try your luck with investment? Well, there’s no need to panic. Keeping a few simple points in mind can help you to avoid common blunders that people commit. This is especially important for beginners who eagerly want to make their money grow in the stock investment market.
1) Don’t trade too often: Beginners usually get carried off with “hot tips” about stock investment on the TV or if they hear that a particular stock is doing very well. Stay away from all these advertisements and marketing gimmicks. Trading too frequently might cause you to pay short-term capital gains tax. The broker also might try to convince you to trade in a particular stock and ultimately he will be the one raking profits with trading fees.
2) Stop panicking: It’s understandable why investors lose their sleep when the market goes down. But never let it take over the better half of you. Panicking when the market is not doing well will only cause you to take unwise decisions. This way you invite more losses. Be calm and prudent while you are trading in the stock market. That’s the most important key to success.
3) Don’t be too greedy: In your school days, moral science lessons taught you to not to be greedy. Now is the perfect time to implement what you have learnt. Impulsively buying and selling stocks in the hope of making more money can actually pave the path to your becoming penniless. In the process, it’s your broker who will become filthy rich with commissions in course of time. Each trade comes with transaction costs and taxes. Gauge your investments carefully to maximize your chances of making profits.
4) Never risk your money with something you don’t understand: So your friend bought a new car with the profits he made in the stock market? That does not mean you will jump to try your luck with the same company. Something that has worked for him might not be the one for you. Before you want to try your luck with any company, try to gather as much information about the company’s business model and its financial history. Also check for the stability of the company. Only after assessing all these factors should you decide whether it will be fruitful for you to purchase stocks of that company.
5) Don’t put all your eggs in one basket: Do not just acquire stocks from one single sector. It might cause your entire investment to go down the drain if that sector suffers a nosedive. The solution lies in diversification. Purchase stocks from all major sectors like property, industry, oil etc. and diversify your portfolio. Limit your investment in one sector to 10% of your portfolio and you should do well.
Keeping away from such blunders in the stock market ensures that you gain an upper hand for yourself. Of course, there are a lot of mistakes that you will commit once you start with your investments but the important thing is to learn from your experiences. Didn’t you already know that billionaire investors have also come up the hard way?