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5 Essential Key Points to Consider While Making an Investment in Stock Market

Home » Investing » 5 Essential Key Points to Consider While Making an Investment in Stock Market

5 Essential Key Points to Consider While Making an Investment in Stock Market

by admin_ipogyan2018

The lure of making big money has always thrown many investors into the lap of stock market. Today investment in stock market is actually a core philosophy of wealth creation since investing in equities creates wealth in long run. Earning huge money in equity is something which is not as easy as it seems to be. Apart from a great deal of patience and discipline, it also requires extensive research and a thorough understanding of market conditions. The investment in equity when properly understood can help you a great deal in making good money. But at the same time, investors can lose all money too in case they invest same randomly without actually getting themselves familiar with nitty gritty of the market conditions.

Develop a comprehensive and also highly successful investment strategy:

Investment in equities is not just about stock market tips but it is about making an extremely smart investment decision. When you are a new investor in stock market, you need to consider a few essence of the points. This facilitates you to develop a comprehensive and also highly successful investment strategy which leads towards an extremely profitable investment.

Given below are 5 key points to make a comprehensive and also successful stock market investment plan:

 #1 – Purchase Stocks Only That You Understand:

This is one of the fundamental rules which suggest that investor should always stay within the circle of competence only. The meaning of this is while buying stocks, you are required to track stock numbers, company fundamentals, company management, sector outlook and market share of the company in the sector, basically in and out of company’s working and presence. This can be done only when you have a thorough understanding of concerned industry and also know about the dynamics of stock market in a thorough manner.

Also Read: Amazing Tips on Investing in IPOs Stock Market and Getting It Right

#2 – Realistic Profit Expectations:

Realistic Profit Expectations

There is nothing wrong at all in expecting the best out of your investment in stock market. But when your financial targets are based on unrealistic assumptions, then you might put yourself in trouble too. When you make your mind to invest in equity then always keep yourself prepared for losses as well. The historical evidence has actually shown that even the smartest of traders achieve only 20% of the calls on their targets. Never try to annualized returns. If you achieve 10% of returns that doesn’t mean it will necessarily be translating into 120% itself towards the end of the year. Things don’t work in this manner.

#3 – Never Try To Time The Stock Market:

One of the most crucial mistakes which even Warren Buffett never tries is, timing the market. He never had any such strong view about the pricing levels which is most appropriate to an individual share. Some of the investors do opposite but financial analysts had already warned them and end up losing a substantial amount of money during this process. Do keep in mind that you should not try to time the stock market. Catching tops, as well as bottoms, is something which is the myth. In fact, by trying such things; people have lost more money than what they would have actually made.

#4 – Spread Risk:

Spread Risk

Spreading risk when you are making an investment is one of the best strategies for reducing its risk. This is one of the most relevant things which any smart investor will do. This can also be termed as diversification or tweaking the portfolio. In fact, there are two vital aspects concerned about spreading of risk. While spreading risk you will come across an associated cost which is in terms of forsaken returns, so just be prepared for that. The investor is required to be prepared for it. Secondly spreading risk beyond a particular point is something which is meaningless as it will be leading to risk substitution itself and not its mitigation.

#5 – Invest Surplus Funds:

When you have made your mind to take a risk and dive deeper into IPO stock market investing, then you should always check whether you have surplus money to sustain in case you lose them. Well, it’s not always essential that you lose money under this scenario. There might be a possibility that investment in stock market may impact your substantial gains in the coming months. But no one is 100% sure about this. This is a condition in which you have to take risk. Therefore you should only look forward to such an investment when you have surplus funds.

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