Share market investments are one of the most lucrative options for young investors. You can grow your wealth significantly by making direct equity investments. However, investments in stocks also come with a higher share of risk. Thus, limited knowledge in this area can lead to losses.
Stock market movements are not always linear as there could be a prolonged bear phase. As a result, stock picking in itself is a fundamental task. If you seek to buy shares for short, medium, or long term, you must devise a proper approach.
In this regard, we’ll be discussing some share market tips for individuals who have just entered the world of investments.
Top 9 Share Market Tips for beginners
Here are some of the best tips you should keep in mind if you’re new to stock market investing:
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Know your risk profile and investment goals
One of the most crucial share market tips and tricks you need to follow before investing in the share market is to understand your investment goals and risk profile. Decide whether you need to grow your wealth for your child’s wedding/education or purchase a house.
Upon identifying your financial goals, you must determine the timeframe needed to achieve them. This can be either short-term, medium-term, or long-term. Note that if you want to receive substantial returns in a short time, you will have to take a high risk. This is because higher risks typically generate higher returns.
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Understand the great divide between a trader and investor.
To make knowledgeable investments in the stock market, you need to understand the difference between traders and investors. A trader is an individual who sells the shares within a few minutes after buying them on the same day. On the other hand, an investor stays invested typically for the long term, primarily months or even years.
You can clearly understand what both these terms mean beforehand. This is because the tips for trading and investing are not the same. So, remember to pick a side before beginning your stock market journey.
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Determine whether you want to invest in shares or mutual funds.
This is yet another helpful share market tip that can help you make an informed decision. Before investing in the stock market, determine if mutual funds could be a safer alternative or not. Mutual funds are an investment vehicle that collects money from several investors sharing common investment goals.
A professional fund manager manages the funds and invests the corpus in financial securities. Henceforth, the gains generated are distributed amongst the investors proportionately. In this option, the investment the fund manager entirely manages the portfolio. Thus, you will not have to make any financial decisions, which lowers the overall investment risk.
So, if you are entirely new to the world of investment and don’t have much time to study the stock market, you can consider mutual fund investments as an ideal alternative.
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Purchase shares of established companies
This is another crucial point you should keep in mind when it comes to share market tips for beginners. Typically, companies with robust business and a massive market cap are unlikely to suffer significant losses. Although these stocks might not provide huge returns over the short term, they could be an excellent investment for the long term.
Data about companies that provide regular bonuses and dividends are readily available online. You can refer to these and determine a company’s market position before investing in it. This will help you achieve capital appreciation consistently.
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Do your own analysis
One of the most crucial stock market tips you need to know is not entirely to depend on the suggestions that market experts provide. Instead, it would be better if you try to study the market movements and analyse the market by yourself. This will reduce the risk of losses and assist you in making informed decisions. Once you start your analysis, you will be able to identify the movements correctly.
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Stay away from derivatives.
You can get the option to buy more quantities in derivatives instead of stocks. The margin money required to trade in F&O is meager and is usually defined for a short tenure. This is what intimidates investors regarding derivatives.
However, investing in derivatives works well for institutional investors with high net worth. They use these tools for hedging. Retail investors or beginners do not have the required knowledge to generate returns by investing in derivatives. Thus, these tools are not a viable option for online trading for beginners.
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Avoid making emotional decisions
One of the most important share market tips for beginners is to avoid investing emotionally. Emotional investing has several pitfalls, which can lead to substantial losses. For instance, during a bull market, many investors tend to overlook the vital investing aspects and choose stocks with weak fundamentals. This can result in substantial capital loss.
A rule of thumb regarding stock market basics is to know that while most businesses perform well in a bull market, there is no guarantee that they will retain this performance in the future. Thus, it is advisable for new stock market investors to invest a limited sum without putting their emotions in between.
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Recognize the potential sectors
Typically, some sectors in the market are likely to grow at a faster pace than others. For instance, the healthcare industry worked well during the pandemic despite headwinds in the other sectors. In the same way, during times of inflation, the energy, oil and banking sector tends to perform well. You need to identify sectors that perform competently and showcase signs of high growth potential before investing.
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Create a diversified portfolio
Since stock options are available across different sectors and asset classes, the overall impact of volatility decreases when you create a diversified investment portfolio. Typically, not all sectors in the economy suffer losses simultaneously. Thus, if one sector goes down, your investment in the other sectors can cover your loss to a great extent.
Share market tips – Key Takeaways
Here are a few takeaways concerning stock market tips for beginners:
- Avoid making investment decisions in a hurry.
- It is crucial to have a clear understanding of the stock market basics and terminologies.
- You need to determine your investment goals and risk profile before investing.
- If you do not have the required knowledge to invest in stocks, consider mutual funds viable.
- Do your own analysis of the stocks and determine the market movements carefully.
- Avoid making emotional investment decisions as it can lead to substantial losses.
- Try to start your investment journey by putting your money in established companies, as they are less likely to go down.
Final Word
Investing in the stock market can be rewarding, provided you have the necessary knowledge. That said, consider using the above-mentioned stock market tips to avoid the pitfalls that you might face in your investment journey.
Kuvera allows you to import your stock portfolio and check the stock’s Current Price, Day’s High, Day’s Low, a 52-week high, a 52-week low, 1-year change, 5-year change, Price to earnings per share (PR Ratio), market capitalization to book value (PB ratio), EPS for the last 12 months (TTM EPS), Dividend yield, Market Capitalisation, Trading Volume, and Average Traded Volume. With the Kuvera app, you can buy and sell any stock.
Frequently Asked Questions
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How can I invest in stocks as a beginner?
You can start investing in the stock market via an online investment platform. Open a Demat and trading account through your preferred Depository Partner’s platform.
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Will I get guaranteed returns from stock market investments?
No, returns from stock market investments are not guaranteed. Stock prices are impacted due to the dynamic nature of the economic environment.
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Can I open multiple Demat accounts?
Yes, you can open multiple Demat accounts as long as they are opened against the same Permanent Account Number (PAN).
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