16 do’s and don’ts of investing for beginners
Here are a list of few Do’s and Don’ts that an investor should keep in mind before starting their investment journey.
DO’s of Investing:
-Start early:
Start investing at an early age as starting early helps in generating long term wealth and you also benefit from the power of compounding. If you begin early you can also get enough time to recover your losses.
Before investing your hard-earned money in stocks, mutual funds or other market investments, be sure it’s worth your money and do all the required research. Make sure you track the markets on a regular basis. You need to understand the company and the business that you are investing in.
“Don’t put all your eggs in one basket “this proverb is rightly applicable here in investment terms. It means that don’t put your money in any one type of investment like only stocks or mutual fund, diversify them and put your money in different asset classes. Diversify your portfolio so that the risk is evenly distributed. No returns are guaranteed so invest only your surplus funds.
If you have a goal in mind and invest money to achieve that goal, there are higher chances for you to make money and achieve that goal as you have a clear direction. You can have a goal of going for a foreign tour or buying a car or even studying abroad.
If you are serious about building wealth, you should invest for the long term. Investing in long term helps you benefit from the power of compounding. So while investing think long term, like 5 or 10 years down the line and not short term.
Sell the stocks in your portfolio which are underperforming since a long time and hold your winners which are making you money. When you cut the losers and hold winners it will help you in your path to financial freedom.
It is not possible to time the market with perfection. Instead of finding for perfection you can buy stocks on dips and average out your position.
When you first learn how to drive a car, you don’t directly drive on a highway, first you will drive in your locality, then on the main road and once you get some confidence you can go and drive on the highway. Similarly, when you invest start with small amount and gradually increase that amount as your knowledge and confidence increases.
Don’t invest and forget it. Watch your investment on regular basis so that you get an overall idea on which direction your investment is going and make changes as required.
Have patience while investing in stock market. If you join a gym you won’t get instant results, similarly by investing in stock markets you won’t get instant result, have patience and don’t sell your good stocks.
A good investor will always try to upgrade his knowledge and understanding. Keep attending free seminars close to you and read various articles online. There are tons of blogs and articles where you can get good knowledge on investing. A beginner can begin his investing journey by reading books like:
- ONE UP ON WALL STREET – PETER LYNCH
- INTELLIGENT INVESTOR- BEN GRAHAM
Don’ts of Investing
The moment you open your trading account you will get a lot of tips for buying and selling. Never invest blindly in stock markets or by tips given from some source. For e.g. if your friend is telling you that a stock is going to give you high returns, don’t go and blindly invest. Do your own research and then if you think it is really going to give you good returns then consider investing.
Don’t have unrealistic expectations of your investment giving double digit returns in a short span of time. Having unrealistic expectations deviates you from your goals.
Investing all your money in all the risky investment might bring up huge loses. Safeguarding your investment is equally important for getting high returns. Therefore, don’t take unnecessary risk.
Don’t always buy and sell you stock for short term gains, you might need to pay a lot of brokerage and taxes. Make transactions only when necessary.
Stock market has a lot to do with people’s behavior and emotions. Many people lose money because they take their investment decisions based on emotions. If you have invested in a company whose share price is falling and is not showing good signs of profit in the years to come, sell your investment even if it has to be at a loss.