You may have come across numerous success stories that inspire you to try your hand at investing in the stock market. However, taking the first steps can be a difficult task. We all know that stocks are a great way to beat inflation, build wealth, and achieve long-term financial goals, but they also have risks involved. Hence, it is essential to learn and understand before you invest in stocks.
Here’s a complete guide to get started!
The Basics of Investing
Investing is not a new phenomenon; it has been around for centuries. However, in recent times, investing has taken a more professional and mainstream approach to various factors. Before we begin with understanding stocks, it is essential to understand the basics of investing.
- Investing requires research.
- You must assess how much risk you are willing to handle.
- Risk mitigation is an essential element of investing to help you attain better returns.
- Investing is typically associated with a long-term perspective.
What Are Stocks?
So, if you are planning to invest in stocks, it is essential to know what the word ‘stock’ means. Simply put, stock is an investment that represents ownership in a company. Let us understand by taking an example.
A company named PQR Ltd. has a total of 1,000 shares listed on the stock exchange. If you buy 100 shares, you own 10% of the company. Hence, you become the shareholder or partial owner of the company, and you can now participate in the company’s profits and also have decision-making rights through voting. So, as the company grows, the value of the stock also grows and vice versa. Therefore, as a shareholder, you earn profits as well as suffer losses like any other owner of a business.
Diversification is one of the tried-and-tested and widely used risk management techniques in stock investing. Diversification means spreading risk, that is, avoiding investing in one stock, industry or sector. Let us learn why this is important.
Suppose you invest only in banking stocks and the interest rate increases. There is a high probability that your stock may perform poorly, and you could lose a significant amount. On the contrary, if you had spread your investments over IT, pharma, energy, etc., along with the financial sector, your risk exposure may have been quite low.
Thus, diversification is all about safeguarding your portfolio against potential losses and enhancing its stability.
Risks and Volatility
You must have heard many stories claiming ₹10,000 invested in a particular stock a few years ago turned into a few lakhs now. These instances are truly inspiring and encourage you to invest in the stock market. But there are instances where people have lost significantly in the stock market.
So, the moral of the story here is that you must understand that stock is like any other asset, which can multiply your money or make you suffer losses. Risks and volatility are a part of stock investing. However, if you have a long-term perspective, it can help you weather short-term unpredictability by allowing your investments to recover over time. Moreover, you can also reap the benefits of compounding when you stay invested for the long term.
To start your stock market investment journey, open an account with one of the best investment platforms. These platforms offer a wide range of features, easy-to-use interface, various resource tools, etc., that can help you enhance your investment experience and gain more knowledge about the stock market.
Santosh Kumar is a Professional SEO and Blogger, With the help of this blog he is trying to share top 10 lists, facts, entertainment news from India and all around the world.