Investing in stocks without taking too much risk is an art.
I am going to share my experience on this blog with you.
Market Timing:
Buying and selling stocks at the right time is essential to
successful investing. You have to wait for your turn when the market is in a
downtrend and look for the buying opportunities. Always remember, don’t buy
everything at once because your buying stock may come down further. For
example, if you are thinking of buying 100 stocks of Reliance Industries when
the market is in a downtrend, try to buy 25 stocks first and then if the market
takes a downturn further then you can buy another 25 and so on. Alternatively,
you can also buy 50 stocks first then 50 stocks later if the market comes down.
So, spreading out of your initial investment over several months is a very
important factor to minimize the risk. The same thing is applicable to selling
stocks also.
Try to check the fundamental strength and technical chart of
your selected stocks before buying the stocks. Reading technical chart is very
important for timing in the stock market. Check if the stock trend is rising or
declining. Stocks are moving forwards slowly can go further but if the stocks
moving up rapidly, there is a high chance that it will level off or drop soon.
Check the trading volume of the trades. Trading volume is
also very important in taking a decision. If the stock has more buyers, that's
a good indicator of the stock's health. A rising price with a decreasing volume
could mean that the price will fall soon due to lack of interest.
Always avoid volatile stocks, if the price of the stock
jumps too much high, and you have noticed a lot of spikes in the technical
chart. That means investing in these stock is not safe. Stay away from these
stocks if you want to earn a profit without taking too much risk.
Diversify Your Investment to Minimize Risk:
Risk management is very important to achieve your investment
goal. The investment in the stock market can give you a good return but if you
are willing to do it with good risk management then it is best for you to learn
about the diversification. For example,
if you are thinking to invest Rs.1,00,000, so with this amount you can select
top 5 sectors and select 1 popular stock from each sector which will give you a
higher return. You can then buy 5 stocks Rs.20000 each. In this process, you
can get different ranges of returns without taking much risk. It is not a great
idea to invest a massive amount in only one portfolio as if it will go in a
loss, you will lose it all.
The Timeframe is Key:
A long-term investment gives you a better chance of
surviving any market storm - that's why I always say you should only invest for
five years or longer if you are not willing to take a risk. If you buy and
you’re your stocks repeatedly, much of your profit will go to commissions for
brokers, and your gains will hurt. So, instead of buying and selling stocks
frequently you should hold your stocks for a longer period of time. There is
also a great chance of getting dividend frequently if you hold your stocks and
you can reinvest them to increase your earning potential. Even investing before
a huge market fall can also bring greater returns, provided your timeframe is
long enough.
Be Cautious about Buying Private Stock:
In reality, some companies keep their stock in private hands
instead of trading their stock publicly on the stock market. Generally, these
stocks are owned by a group of shareholders who can only sell their stock with
approval from other shareholders. The shareholders set the price at which the
stock can change hands. These stocks are very risky because you may not be able
to buy or sell stock when you want to. You may have to make a large investment
unless you are an employee of that company. OR it may even be a scam.
Start with Small:
This may sound very simple to you but it is also a very
important factor if you are a new investor. You should start investing with a
small amount in order to boost your confidence in the stock market. If you
choose to invest a large amount to start you may not get a good return from the
market. In that case, you may end up losing your hard earned money and
confidence in the stock market. You need to gather more experience and
knowledge if you want to earn a great return from the market. So starting with
a small investment is always a great idea if you are a new investor. You can
then start investing more as long as your experience and knowledge rises.
Don’t Monitor Your Investment too Closely:
If you want to invest to money for a long term in the stock
market, then you do not need to monitor your investment frequently. Frequently
monitoring your investment may distract you and force you to sell your stocks.
You may end up with losing money. So, it is very important for you if you are
expecting for good return without taking the risk.
Remember: The Bull market doesn’t last forever, and the main
purpose of your portfolio is to allow you to live a more pleasing life. Your
willingness and desires to take risk may not be as high as you think.
