Module 1: Chapter 8
Investing is a way to keep the money you've saved aside while you're busy in your life and have those savings work for you so that you can enjoy benefits in the future. According to the legendary investor Warren Buffet, investing is the process of laying out money today with an expectation to gain more money in the future". This is the reason why investing in the stock market is considered as the most profitable way of growing your money. In this chapter, we will discuss all the do's and don'ts of investing to help you become a mindful investor.
Why Equity Is The Best Way to Beat Inflation
An equity investment refers to the money that is invested in a company by buying its shares in the stock market. These shares are traded on the stock exchanges. Equity investment is the best way to beat inflation because of benefits like higher capital gains, limited liability, exercise control, liquidity, and so in. Usually, equity investors buy shares of a company with an expectation that they will increase in the form of capital gains or generate attractive dividends. Note that equities can strengthen your portfolio by diversifying it.
The main advantage of investing in equities is the higher possibility of increasing the value you have invested as capital. Equity provides you with a wide range of investment options with a minimum initial investment. And this is the reason anyone can invest in equities regardless of their income. You can start investing with as little as Rs 500 per month.
Should You Become An Investor or A Trader
Trading Vs Investing has always been the hottest topic of debate in the stock market. Both are lucrative investment options provided the right knowledge and circumstances. While investing is an art, trading is a skill that you need to acquire. Both of these profit-generating methods are meant for different people.
Trading is an approach where you need to make quick buying and selling decisions while keeping an eye on the fluctuating prices of the stocks and shares. This period generally lasts for a day, and hence it is known as day trading. Sure, it can help you grow your money exponentially, but a single mistake of yours can result in unrecoverable losses.
On the other hand, investing is a long-term strategy that works on buy and hold methodology. Here, you buy the shares of a company when the price is low and hold them for years and decades to enjoy a steady flow of returns. It is a low-risk approach that offers moderate returns. Although trading can offer you high returns, investing can save you from humongous losses.
Become a trader, if:
- You have enough time to become a full-time dedicated trader
- You're ready to take the risks
- You have a good amount of initial investment
- You have no long-term plans
Become an investor, if:
- You don't have enough time to fully dedicate to the stock market
- You have a very low-risk tolerance
- You have long-term goals
- You have a low amount for initial investment
Whether you choose to become a trader or an investor, be very mindful about it. Make your decision on the basis of your financial goals, personal preferences, and your current situation. Moreover, do in-depth research and analysis before entering the stock market.
Do's and Don'ts of Investing in Stock Markets
To help you become a better investor, we have listed some do's and don'ts that you need to keep in mind.
- Do your research before entering the stock market. And don't wait as there is no perfect time to enter the market. There are many applications and platforms where you can learn about stock markets and the basics of investing. This will greatly help you in learning how stock markets work and how you need to leverage the power of investing.
- Make use of tools like stock screeners, SIP calculators, index calculators, etc for selecting the right stocks.
- Start your investment early as it helps you to accumulate good wealth for the future. By starting your investments early, you can live a laid-back and stress-free retirement life.
- Don't try to time the market. Market timing is a MYTH.
- Don't pay more than 2% as a trading fee. If you're being charged more, talk to your broker.
- Make an investment, no matter how small your amount is. With this approach, you can reap the benefits of compounding over the long term.
- Don't let your emotions of greed, fear, excitement, loyalty, etc. affect your investment decisions. Make sure your decisions are practical, not emotional.
- When the stock prices are rising, concentrate your portfolio and follow the buy and hold strategy. Similarly, when prices are low, diversify your portfolio by having different types of stocks and shares.
- Do diversify by making investments in multiple sectors that are not related to each other. Investing in multiple sectors ensures low risk and better profits.
- Don't over invest. Always have a budget in your mind.
- Don't invest immediately after hearing from your friend, colleague, or anyone. Do your research and take advice from your trusted financial advisor.
- Don't blindly follow the stock market tips and tricks on the internet. Even if the news is from a trusted source, do crosscheck it.
- Don't get greedy after the first few gains. Don't over buy in greed. Be patient.
- Know the level of risk you can take without putting your financial health at stake. The best idea is to invest in companies with good history and low risk.
The stock market can be a reason behind your future wealth provided you know how to invest in the right way. In these stock market chapters, we have covered everything you need to know before entering the stock markets. From discussing how the market works, to how you can select the right investment approach, we have discussed everything. We hope it helps.
