he first rule of investing in the stock market is that it should be inversely proportional to your age.

The younger you are, the more you should put in your total savings in the stock market. The older you get, the lesser the percentage.

Unfortunately, many get this wrong.

I keep encountering people who put in their Voluntary Retirement Scheme money, Public Provident Fund maturity amount, or their retirement savings in the stock market. And, more often than not, regret their decision.

The ones who should be seriously eyeing the market are the young people in their 20s.

Unfortunately, they are too busy rushing for the latest cell phone model rather that the newest Initial Pubic Offering.

Here is what I suggest for each age group.

• How I missed making a killing in the market

The 20s

Step I: Play the virtual game

Start with the learning stage. Play with virtual money. Make a dummy portfolio online and buy stocks you think are great or those that people recommend. Indulge yourself in all the 'tips' that come your way.

See if it works. Ask yourself some tough questions (and please answer them truthfully).

- Do these 'tips' actually pay off?
- What happens to your stock price after you decide to 'sell'?
- Do you feel miserable when the price goes off after your sell or do you let bygones be bygones?
- Do you prefer holding in the hope that the price will further increase or do you keep cut-off dates?
- How do you feel about losing money? Would you have taken the risk with actual money?

Playing the virtual game will throw tremendous insights on your risk-taking ability.

You will get an idea as to what sort of an investor you are. In fact, you will get a clear indication as to whether or not you can stomach the ups and downs of the market.

Everyone thinks they will handle themselves well if they lose money. But few actually do.

Step 2: Get informed

Get your hands on some good reading material. Read about the market. Understand how it works and functions.

Go through financial publications to keep updated.

At times, this will mean opting for CNBC over and above the latest reality show on television.

Once you have dabbled in the virtual world and worked hard at increasing your knowledge base, you would have acquired a fair amount of experience as to how the markets work.

Step 3: Step in gingerly

Now you can gradually start investing in the markets.

Put a part of your earnings aside every month. Don't put all your money in at one go or invest only in one company.

• I violated every investing mantra and made money

The 30s

This is the time to make big bucks.

You are at a point in life where you have had almost 10 years of trading experience (virtual and real) and would be familiar with the ups and downs of the market.

What's more, you are at that point in your life when you can afford to take the risks.

Now, you can even think of diversifying amongst different investments.

The stock market is not the only place to invest. Real estate, sector mutual funds, life insurance, pension schemes are worth considering too.

• How I made and lost a crore

The 40s onwards

During the 40s and 50s, it is time to shift the investments more towards the safer alternatives of mutual funds and bonds.

This is actually the hardest thing to do, especially when you see the returns on the stocks as compared to the others.

But remember, greed will push you to the dumps.

On retirement, it is time to cash in. At the time, the investment should be largely in regular income bonds or fixed deposits to ensure you maintain your lifestyle in the aging years.

• My experience as a day trader

A bit of advice to the first-timers

i. Don't lose heart when you lose money

It is said that one learns to handle difficult times with age. The same principle applies with the stock market.

The worst thing that can happen to you in the market is if you make money at the first go.

Let me explain. When you lose money, you will tread more cautiously. And this is the most important lesson you could ever learn. Being conservative will not produce spectacular results, but will benefit you more.

If you rake in the moolah at your first attempt, chances are you will turn out to be a very reckless investor. And you could lose heavily. It is human to raise the stakes after the initial bout of success.

ii. Don't panic as the markets go up and down

Traditionally, the stock markets have seen an annualised growth of around 8% to 12% over the long term.

But they can be very punishing in the short term.

Don't let the gyrations in the market get to you.

iii. Don't sell during a bear phase

Stay invested when the markets fall. Don't panic and sell your shares. In fact, that is the best time to actually buy more stocks as you will get them really cheap. 

Remember, when you start young, you have time -- lots of it -- on your side. You can ride the ups and downs safely and make up for the losses made.

Happy trading!

Do you have any investing experience you would like to share? We would love to hear from you.

Illustration: Dominic Xavier

Note: These views and the strategy mentioned reflect the author's personal convictions. They are not a sure-fire way to make money in the market.