The trading was suspended for an hour as the Sensex took a 2273 points plunge and stood at 15,332 points. Events like these have shaken the faith of many investors, and they still stay away from the markets. However, before you go ahead and label investments in stock as a way of losing money, it would be interesting to know that the markets did recover from those market crashes, and until very recently, in January 2015, the Sensex reached an all-time high of 296811.77.
Investing in equities is usually considered risky because stock prices keep fluctuating on a regular basis. However, as it’s said “higher the risk, higher the returns”, and therefore, if you have the knowledge and expertise of investing in stock markets, there can be no other asset class that can give returns as high as the equities. This is why for many high-net-worth individuals, wealth management in India by consulting professional asset management firms has become a trend. In this way, investors build a strong, stable and profit-generating portfolio. For those, who want to try their hands in the stock markets, here are a few useful tips:
Tip 1: Go for a long-term strategy
When developing a strategy, look at the bigger picture. Don’t just focus on your short-term goals, and keep an eye on the long-term financial requirements such as your child’s education, healthcare, retirement planning, and more. Long-term strategies can work the best when you invest in assets such as stocks or real estate. Historically, investment in them has always yielded higher returns as compared to any debt investments made in similar time frames.
Tip 2: Expect realistic returns
Many investors have unrealistic expectations from their investments. They expect more returns and minimal losses. It is better to set realistic expectations, and therefore if you are investing in equities, your first consideration is to know about the equal risk/reward ratio in such investments. One of the reasons for expecting unrealistic returns is the tendency of investors to look at the top performers only.
Tip 3: Be prepared for the fluctuations
Investment in asset classes such as equities, real estate, and gold encounter price fluctuations more often. Be prepared for this market instability and do not panic if your stock portfolio dwindles by a substantial percentage in a short period of time. It is not unusual for stocks to fluctuate, and therefore, keep patience and wait for the right time to pull back from those levels. In fact, if you have more money to invest, go ahead and put it on the market. This will help you average out and own the same stocks at a comparatively lower rate.
Tip 4: Financial Vs. Investment Planning – Know the difference
Often people get confused between investment planning and financial planning. While the two are similar in terms of the methods implemented for achieving the desired results, they differ in the following respect. Investment planning has a specific focus on understanding the investor’s objectives, risk appetite, asset allocation, and develop investment strategies. On the other hand, financial planning has a holistic view and is an intricate technique that involves more than just management of investments. It considers various aspects such as income sources, insurance assessments, investments, lifestyle planning, budgeting, and more.
Tip 5: Don’t just jump on the bandwagon
Just because everybody around you is bullish about the market and is investing in it, does not mean that you should also invest. Do a thorough risk/reward analysis before making a buying decision. Similarly, when the markets are bearish, and share prices are falling, people would be selling stocks. However, you need to carry out some research because usually these are the times when you are supposed to enter the market.
Last Few Words
Whether you decide to invest in equities on your own or hire the services of a wealth management firm in India, the key to success in stock markets is to remain patient. Whenever you decide to invest in the market, use the funds that you are not likely to use during the next four to five years. This will help negate the time horizon factor, one of the biggest considerations when it comes to investing in equities.