It is never too late or never too early to begin investing in stock market. So, this article will help you give a head start to your stock market investment journey.
We assume you probably know the meaning of basic terms like Shares and Trading Account. In case you don’t then, click on each of the terms above to know what they mean.
Here are 7 steps for a good start, read them carefully and share if you like it:
Step 1: Decide How Much Money You Want To Put In, See How
Stock market gives lucrative returns but it is very risky too. Do not invest a huge sum suddenly. Start investing slowly and keep putting more money as you gain more confidence. Your starting investment amount may be as low as Rs. 2000, it does not matter. What matters is that you begin as early as possible.
If you are a student, we suggest you this formula to know how to invest in the beginning:
Lower amount of the following-
1) 50% of your Bank Balance
2) 3 months of your leisure expenses like watching movies, going to parties, eating outside at restaurants etc.
Suppose, your bank balance is Rs. 20000 and you generally spend around Rs. 2000 every month on leisure activities. Then you should begin with:
1) Rs. 20000 x 50% = Rs. 10,000
2) Rs. 2000 x 3 = Rs. 6000
I.e Rs. 6000, would be a good amount to begin investing and you can invest more as you gain confidence further.
If you have already started earning then you could start with investing 5%-10% of your monthly income and you can invest more as you gain confidence further.
Step 2: Open A Trading Account With A Broker
You will get lots of information online if your research for the best brokers on Google. There are many brokers like Kotak, Edelweiss, Share Khan, Zerodha, Motilal Oswal etc. Most of these brokers will give the benefit of first year free AMC and some other benefits. Talk to at least two or three brokers to decide which one should be the best for you. It is a competitive market so don’t worry too much about which broker to choose and just start your investing voyage quickly. You change your broker a year later if you feel like, it won’t cost you a fortune.
The first question that the broker will ask you is that how much money do you want to put invest. Don’t shy away even if you are investing as small as Rs. 3000. Tell them the fact, that you are just starting to invest and you would invest more in future but right now you want to invest just what you have.
Step 3: Make a list of stocks you may invest in, see how
Do not blindly trust any free stock advise that is given online or on TV. Stock advisory is a very big business, for which good advisers charge hefty fees, so why would anyone give you a good advise for free?
However, you may consider advises from trusted sources like Economic Times, CNBC, Money Control etc… but only after understanding the reason behind the recommendation and then performing your own research and vouching for the facts and fundamentals.
While this may not be as easy as it sounds but if you follow this practice on a regular basis, slowly and steadily you will develop an acumen towards smart investing. You can also ask for advice to your family, friends or relatives whose knowledge you trust. But keep in mind, don’t blame them if you suffer a loss on their advised stock, do your know research and blame yourself.
Step 4: Do not invest all in one
The biggest mistake that almost every beginner does is that they put all their money in just one or two stocks. No matter how much they read about ‘diversification’ on the internet, beginners still do this mistake. Doing this exposes you to a very high risk.
Then how many stocks shall I buy?
Well, everyone has a different answer to this question. Our advice is that you should divide your money into 4-5 stocks equally in the beginning. Choose your best bets from the list you made in point number 3 above. This will enable you to efficiently track your stocks and their related news. As you invest more in future, you should expand your portfolio to up to 10 stocks.
Step 5: Do not buy stock of less popular companies
The stock prices of small companies may be easily manipulated in the market as the volume of transaction is low there. Also, such companies are rarely covered in the news and other media reports. So, it is advisable that beginners shall only invest in either Large Cap stocks or in famous Mid Cap companies whose brand name is popular in the market. Investors shall give attention to financial statements, financial ratios, news and media reports before investment. We will be coming up with more articles on the technical aspects to look at in the financial statements and financial ratios.
Step 6: Avoid stocks nearing 52 weeks high/ low
Any stock price may still be lucrative even when it is at its 52 weeks high/low but beginners should avoid it because the risk is on a higher side in both the cases. Rather, beginners shall look for stocks that are trading somewhere in the mid-range of their 52 weeks high and 52 weeks low.
Step 7: Invest Now
You are ready, now. You cannot know all in one day. Learning about investing is a slow process that can be escalated by practical experience by investing yourself. This is the right time to overcome your fear and begin investing. What would be the worst? You will lose your money! But what if you don’t? In that case, you will definitely develop a habit of investment and this habit will make you a smarter and richer as the time passes by. Remember, it is not your salary but, investments that make you rich!
Sahil Goel | LinkedIn