Legendary investor Warren Buffett defines investing as “Process of laying out money now to
receive more money in the future.” For beginners, investing in the stock market is the most
common way to gain experience. However, investing in stock markets is risky as one can
incur losses. Investing is easy, but investing successfully is tough. Let us see the factors that
need to be considered while investing in the stock market to minimise the risk and maximise
the benefits.
1) Investment objectives –
Before parking your money in any kind of investment, one should sit down and take an
honest look at their entire financial situation. The first step in planning the investment
process is to chalk out what your goals are and how much risk you are willing to take. If
your investment goal is to keep your money safe, then you can choose investment options
like FDs and bonds. However, if you are looking for higher profits and do not mind
taking a risk, you can look at investing in stocks as an option.
2) Factors that you need to consider
a) Age factor
100- Your AGE = X
This formula can be used to find out ‘X’. One can invest this X% of total investment
amount into the stock market. It simply means, starting early will allow you to invest
more in stocks.
b) Time horizon-
Once you know your future goals, you can plan your investments keeping in mind the
time target you would want to achieve them by. Accordingly, you can divide and plan
your short term and long term investments. If you are ready to stay invested for a long
duration, you have a sure-shot chance of getting good returns, if you have invested in
good companies.
3) Stock selection –
When the question arises regarding “which stocks to invest in?” there are
two schools of thought. One is of fundamental analysts and other is of
technical analysts. Let us see what things need to be considered in case
of both
Fundamental analysts study different parameters, which include
promotors/FII/FPI’s shareholding percentage in company, debts and
liabilities, cash flow, P/E ratio and future growth plans of the company.
One must know that investing in stocks means actually investing in
those businesses. Hence for our money to grow, the businesses have to
be healthy.
On the other hand, technical analysts study charts available on charting
site (investing.com) to judge the trend of the stock. It is advisable to
invest into up trending stocks as there is a great possibility of it to
perform better in future. Nifty50, NSE index is considered as a benchmark
as it represents India’s top 50 large-cap companies. One can simply
select best trending stocks from Nifty 50 or invest in certain stocks
which are outperforming nifty.
4) Diversification –
It is advisable to invest in different stocks instead of putting the entire
amount into one stock to minimise the risk and also to beat the inflation
rate. Selecting the best stocks of different sectors to invest in is a good
option. Eg. In the Banking sector, one can choose banks such as HDFC
bank and/or ICICI, in Consumer goods Hindustan Unilever and/or Nestle,
in the IT segment, stocks of TCS and/or Infosys and in Automobiles
sector, Bajaj Auto, and/or Maruti etc.
In addition to this, you can also invest some amount in small/mid-cap
companies along with large-cap ones. Having said this, one must make
sure to invest in only as many stocks as many as one can monitor on a
periodic basis very easily.
5) Learning is the key
Whether you decide to invest in stocks through the fundamental or
technical way, you should make it a point to understand and learn
the key aspects of both. Learning about your stocks and how to invest
in them is mandatory to safeguard your hard-earned money. The
market will not always be in an uptrend. But there are ways through
which you can protect your investments in a falling market too (by
adopting hedging strategies) provided you learn about it. No one can
manage your money better than you.
With proper knowledge, systematic approach and disciplinary
methodology, stock market investment is no longer a risky affair. Rather
stock market investments are by far most lucrative and liquid form of
investment yielding highest returns as compared to other conventional
investment means. The stock market is one sure place of investment for
all.
