Top 10 things to understand before investing in the stock market

The stock market attracts people from all walks of life. A good way to hedge is to look at a stock price forecast, which wall street analysts prepare. People come here to make money. However, you should also know that it is a place where a lot of people lose money as well. Thus, investing in the stock market is a risky thing. Here are the top ten things you should follow and understand before investing in the stock market:

  • Be practical

Do not have unreasonable expectations like you can double the money in a few months, etc. The Stock Market is not a money printing machine.

  • Learn and Educate

Before entering the stock market, make sure you learn about online investing, stock trading, etc. You should also educate about how to analyse a company, its ROE, PE, etc. Understanding these will help you survive in the stock market and earn handsome returns.

  • Don’t leverage

Another important thing to understand while investing in the stock market is not to leverage. Taking leverage and trading is a big no. Trading in derivatives (futures and options) should also be avoided.

  • Diversification

Diversification not only helps protect your wealth but also helps earn decent returns when one theme/sector is not performing well. It is always a good practice to diversify your portfolio into different sectors and themes so that it can act as a hedge in times of volatility.

  • Discipline

Discipline is a good trait to have in stock markets. It is better to invest small chunks of money in a phased manner rather than betting a large sum in one go. It is very difficult to time the markets so it is better to invest systematically.

  • Don’t work on tips

Some newbies entering the stock market tend to buy stocks given by neighbours or friends who do not know about investing. It is very easy to fall prey to such tips as they look attractive. The best way is to do your due diligence and study the company in detail before investing in it.

  • Be realistic

A stock market is a place where you can earn inflation-beating returns. But if you think that a recent bull run gave 50 to 100 percent returns and you can earn similar returns, then you are committing a mistake. It is important to be realistic while investing.

  • Keep your emotions in check

It is very easy to get carried away in stock markets. You should have total control over your emotions to survive and thrive in these markets. You should stay calm and make wise decisions whether you are making profits or losses.

  • Monitor your portfolio

Investing in the stock market is not enough, you should monitor your portfolio at regular intervals and check whether the performance of your portfolio is as per your plans.

  • Don’t enter stock markets out of FOMO

Many new age people are getting into stock markets just because they do not want the fear of missing out (FOMO). That is not the right way. You should have a clear purpose while entering stock markets.

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