Top 4 tips for 1st-time investors in the stock market

By: | Published: June 27, 2018 12:58 AM

Don’t expect magnificent results from day one. Initially, you may also lose some money. Combine investing with sound money management skills. Invest regularly. In any form of investing, discipline and regularity are the most important determinants of success.

Investing is about more than just the stock market.

Investing in the stock market is not a gamble, it is a business. However, we make it a gamble by investing without knowledge. Market highs and downs can be frustrating for a new investor. For first-time investors, equity mutual funds should be the preferred route.

Ideally, you must take help from an expert fund manager to manage your funds in the stock market. Mutual funds collect money from investors and invest in stocks. In mutual funds, first-time investors should look at Systematic Investment Plans (SIPs) to build long-term wealth. SIPs allow an investor to buy units on a given date each month. One can start with a minimum amount of Rs 500.

Before you invest your first paisa in the stock market or in mutual funds, ask yourself, “Why am I investing, and what do I want to achieve?” For example, if your goal is to save Rs 50,00,000 in 10 years, start with the end in mind and figure out how much you will need to invest monthly to reach your goal.

Portfolio diversification

Investing is about more than just the stock market. Trying to get rich quick by putting all your money into a few hot stocks will almost certainly fail in the long run. The path to long-term wealth creation is building a diversified portfolio of stocks, bonds and a range of other asset classes.

Define your financial goal

Before investing, it is always advisable to know for what you are investing. All your investments should be aligned with your specific financial goals, be it your retirement, child education, home improvement, etc. Once goals are determined, you can project how much-expected growth your investment needs to achieve to reach these goals. That, along with risk tolerance, will drive asset allocation and exposure to parts of the stock market.

Persistence with your investment

Don’t expect magnificent results from day one. Initially, you may also lose some money. Combine investing with sound money management skills. Invest regularly. In any form of investing, discipline and regularity are the most important determinants of success. Warren Buffett puts it well when he says: “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

Start investing early

The earlier you start, the easier it is to build wealth, thanks to the power of compounding. You’ve probably heard this a million times but it’s important that you truly believe in this statement, to reach the inflation-adjusted corpus you need to start early for your investment, you will end up far richer if you begin investing early. It is due to compound interest and the outcome differentials are staggering.

For example, Sonu starts investing Rs 1,000 monthly at the age of 30 and Monu starts investing Rs 2,000 monthly, at the age of 45. Both decide to retire at the age of 60 and the invested amount is compounded monthly. You can see the difference in the wealth that both have accumulated at the time of their retirement. Even though both of them invested the same principal amount, Sonu’s corpus will be more than twice the corpus accumulated by Monu, at the time of their retirement. That’s what compounding can do to your money if you start at an early age.

Paritosh Sharma

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