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Do your fear losing money in stocks? Here's help
Historically, shares are considered to be one of the most risky forms of investments. It is generally the fear of losing money with the fall of markets that deters people from looking at stock markets.
But what one fails to notice is that holding cash in a bank account is no better either. Your money maybe safe but it won't even provide hedge against inflation. Any 'investment' comes with its own share of risks.
So, the simple answer to the question -- should one invest in stocks -- is a BIG yes if you are a long-term investor. But as an investor in stocks there are a few basic things that one has to remember.
Following are a few of the important ones.
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Kunnath Santhosh, Co-founder and Director, Perfios software Solutions Pvt. Ltd. Perfios (www.perfios.com) offers an online Personal Finance Software Solution that provides a 360 degree view of one's Personal Finance with very little manual effort.
1. There are going to be ups and downs and one has to stay invested even in the most difficult times
One should know that there are phases in which the markets may slump and during those times everyone is bound to lose money. But over the years, research has shown that when the markets bounce back, the rise is nearly 9.8% per month on an average after it touches the bottom.
There are even cases when the returns will be almost double of what one has invested during the bounce back. So if one confidently stays invested in an emerging market like India, one can definitely profit during such rises.
After every trough comes the crest.
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2. No one can predict the market
Even the most touted market guru can't time the market. Though, an experienced investor can read the signs of the impending doom or glory, the exact time of the crash or the bull phase can't be timed.
If the opposite was the case, then no investor would have ever lost money! Also, the Indian markets cannot stay immune to the happenings in Asian, European and American markets.
3. You should not be afraid of the bears (in market terms)
One look at the Sensex during the past decade shows that six out of ten years were boom time.
The sharpest rise seen in the last decade was the year after the sharpest fall.
This proves the first point discussed above too. Also, the bear phase is always shorter than the bull phase. So do not be afraid of setbacks.
A long term investor should be the happiest during this time as these are cherry picking times. The pessimistic feeling during these times is the greatest opportunity for picking up some bargains which is very important for successful investment.
As the stocks get undervalued during the bear phase there is almost 100% guarantee that during the recovery phase the investor will be smiling all the way to the banks.
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4. Markets reward patient investors
Equity markets inherently carry risks but they won't leave the faithful in lurch. Historically, it is seen that being in the market is more rewarding and outweighs all the risk that one may face in that stipulated time.
The bulls and the bears will surely be there and it is always the patient investor who has the last laugh.
5. Resist your temptations
One aspect which is widely seen among the investors is to dump all the money in the stock markets in one go, after some very successful initial proceedings. You might be buying some trouble in this case.
It is always advisable to distribute money over a period of time as you never know a scrip, which you brought previously may be available at an even cheaper rate today.
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6. Have some strategies in place
One sure short way of losing all the money invested in markets is to blindly dump your money in some scrip on hearsay. There are thousands of companies to choose from, listed broadly under thirteen sectors (Bankex, Oil & Gas, Metal, Power, Auto to name a few).
It is always important to know why you would like to invest in a particular stock rather than ten other options available in the same sector. In order to know this we have to meticulously do some research.
7. Research
This is the single most important thing than an individual can and should do to protect ones money. Know the company you are interested in investing very well. By this I mean one should know the stake of the promoters, FII exposure, quarterly performance and the strength of the order books too.
All this information is easily available on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) sites.
By knowing these one can take an informed judgment and know that you are investing in a company which has some merit for your trust.
If one can remember and implement the above mentioned steps then the chances of a faulty investment is very low. So overcome your fear of losing money in stocks and start investing.