“If you learn to save me today, I will save you tomorrow.” MONEY
Money is a tool. It connects our present to our future. While it’s not the most important thing in life, we can’t do much without it. If you learn how to properly invest your money, your future could reap amazing results. The stock market is one of the most convenient and beginner friendly ways to start your investing journey. But there are basic rules of the stock market that have to be kept in mind to start your investment journey successfully:
Identify your stocks
Choosing the right stock is the most important decision you have to make. If you buy the right stock, you can win the market. You should therefore carefully check the fundamentals of the company, before buying their stock: What kind of product or service they offer? Are these products or service added value to the customer’s life or not? Is the company generating recurring revenue? Thoroughly research those important aspects, before investing in the company’s stock. In addition to these basic economic aspects, here are few statistical indicators, you should look into, when searching for the best stocks to invest into:
● P/E Ratio (Price and Earning Ratio)
● 52 weeks Low and High value
● ROE (Return on Equity)
● ROCE (Return on Capital Employed)
● ICR (Interest Coverage Ratio)
● PBV (Price and Book Value)
Picking the right stock is an art and mastering it takes time, so invest wisely and thoroughly analyze the company before investing. The checklist above, should definitely steer you in the right direction.
Maintain proper wealth mindset
The stock market is one of the best investments you can make. But why are you investing your money in the stock market? Do you want to see the return in 3 months, 6 months, 1 year, 10 years or more? If your mindset is on the short-term gains and profits, you are looking at the wrong direction. Stock market should be seen as a long-term investment in order to see great returns. While in major economical events, the stock market can reap amazing results in short term, expecting to regularly gain high short-term profits in stock market can often lead to disappointment.
Diversify your investments to protect them. By diversifying your stocks through time, you are lowering the risks and protecting your investment. But the best thing about the stocks is not the short-term profits they can produce, but the fact that we can maintain them over time. Consider your profit from dividends as well as the profit from the stocks themselves. A short term fall can still lead to great increase in the 2-year’s time, so don’t be discouraged. And a small fall in one stock can be compensated by incredible rise of another, so invest across variety of different industries and choose strong, stable companies.
In terms of prioritizing, we would recommend investing in stocks, rather than in bonds. Overall, the stocks yield a higher profit gain through time and would be a better long-term investment. Consider your options, and choose the best one for you.
Share, buy and hold
As an investor, holding your stocks is essential. Learn to hold an excellent stock after buying it. You will see a lot of price fluctuations, but don’t be tempted to sell too early. As we’ve already mentioned, the stock market is a long-term investment and holding to a great stock can sometimes pay out way better than selling on every large leap in prices. Still not convinced? Here is one example:
Warren Buffett started buying shares of Coca-Cola in 1988, and owned 23.35 million shares worth $1.8 billion, by the end of 1989. At the current stock price, his investment in Coca-Cola is now worth around $20.7 billion. Not to mention the dividends, which are paid out around $0.40 per share, bringing him hundreds of millions in yearly dividend income. So stay patient, invest wisely, and see your investment grow.
The risk is an essential part of the stock market. Since most of the people want to avoid risks, they avoid investing in the stock market. While this is a valid point, every investment in life involves a certain amount of risk. But there is a difference between foolish and calculated risks. If you take calculated risks and understand the share value you can make great investments. The core essential of the calculated risk is knowledge. The chance of success is higher than the chances of failing, if you have carried out the appropriate amount of research. The more knowledge you have about the company and stock market, less risky your investment becomes. So do research and then research some more. learn about the basics economy, invest in your knowledge and make your decisions on calculated risk, backed up by an extensive knowledge.
Cash management is crucial for traders. Investing a relatively big sums of money, appropriate to your current financial situation can yield the best results. But investing a large sums of money does not mean you should trade with the entire amount. Consider maintaining emergency trade cash in your trading account for the stocks you can buy when the prices dip. For trading purposes, use 0.4 % or 0.5 % of the total value and slowly grow the value of your investment. Most of the prominent traders follow 2.0% rule, investing strategy where an investor risks no more than 2% of their available capital on any single trade. For the beginners, a 0.4% – 0.5% used for investment would be a smart starting point. Consider using online money management online calculators for your convenience.
Last but not least: control your emotions
Most people will be upset by extreme fluctuations in stock prices, which is completely understandable. But stay calm and collected. Mayor companies have weathered large economy collapses before, but have still come up stronger than before. While a mayor event can cause the stock market to take a plunge momentarily, the companies can survive and have survived large unpredictable events in the past.
Be realistic about short-term gains, control your emotions and invest wisely if you want to get succeed in the stock market. Stock market can lead to a great gain, but can also end up in some losses, so invest the money you can afford to miss and work your way forward from there.