If you want to purchase any household goods you go to a mall or shop, for groceries you visit a supermarket. Just like that for purchasing or selling stocks, you would go to the stock market which is not a physical place but has an online presence. Anyone who has a brokerage account, employee retirement plan, or Robo-advisor can have access to Stock Market. There is no rule to become an “official investor” to invest or trade.
Generally, the Stock market is referred to as one of the major stock market indexes as it is hard to track every stock and the index has a section of the market. Moreover, It is a representation of people's behaviour and performance. A stock market is a place where buyers and sellers meet, they negotiate, and make trades.
Things to keep in mind before you start investing
- Understand Your Investor profile:
The requirements of every investor are different and unique. You should take investment decisions only based on your investor profile. The three factors that can help you to find your profile are:
• Financial Goals- You should understand what your financial goals are. What you are trying to get and achieve from the investment you make. What is the ultimate goal behind this investment? How can it be reached? etc.
• Investment Horizon- Stock investments offer quite good returns for the long term. As the volatility of the short term eats away the profit. In the long term like (7-10 years), the volatility is reduced and there more scope to earn. Based on the goals you should decide till what period of time you want your investment or funds to be engaged.
• Risk Tolerance- Risk tolerance level is the amount or level of risk you are able and willing to take. If you are a risk-averse person like the one who hates risk or volatility you might love investing in a strong company like Tata. The stock of Tata company is not highly volatile so it generates stable returns. On the other hand, if you want to go all out and risk a lot to have higher returns you can invest in a small volatile company You need to determine how much risk you are willing to take and at what cost. - Research the company you are willing to invest in before investing: For better investment decision research is an inevitable part of trading. To earn good returns your research should be as good. A strong company’s price will be high as more customers are attracted to it and yield will be lower than a volatile company. A stock or a company that can benefit you for a long journey and gives good returns- should be your choice.
- Diversify: Diversification means investing in many different companies with different risks and yields to smooth the volatility in the portfolio.
- Track and Monitor: You need to track the stocks and the market once you start investing. So that any movement you can take an instant decision and go by your knowledge.
Unpacking Myths of Investing in the Stock Market
- The system is not meant for me: There is this bias in people’s minds that the stock market is not meant for them due to a lack of confidence. Also, they think they would need a lot of money to start investing and financial advisors would just play with their money. There is another option, Robo-advisors to get started with investing. The algorithm helps you to choose what investments you should go for and manages your investments. The cost is low and it can help you find the right mix of assets.
- Huge risk of losing all the money: Many times even luck plays a factor but it is highly unlikely to lose everything but there is a thin possibility. The short-term volatility can make the balance variate more and in long term, it is quite smooth. But if you have a properly diversified portfolio the balance will smooth and if helps for the longterm, there is a huge possibility of growth as time goes by.
- I have to mandatorily pay for a financial advisor: It is a great asset to have a financial advisor by your side who will help you out in compilated financial life. If you need to plan your retirement or estate planning, a financial advisor will be very useful and handy. Otherwise even a Robo-advisor can do the job efficiently.
- Need to have a lot of knowledge of the market before investing: You should not worry that you do not know much about the market initially. Start investing a small amount understand the market, study, and become better at it as time passes. Don’t let the minimal investing knowledge hold you back. Many financial advisors say that even passive investing like investing in index funds can bring you good returns if you let it grow.
- Opening an Investment Account will make me invested in it: If you open a demat account it is not mandatory to put funds in it. There are some types of investment accounts where the initial minimum deposit is there but in some, the requirement is zero.
Conclusion
To sum it up, we discussed what is the stock market and how it works? A stock market is a place where the buyers and sellers meet, they negotiate, and make trades. A stock market is a place where a person can earn a lot and even lose a lot. Risk is an inevitable part of getting good returns in the stock market. Factors like diversification, research, determining financial goals, etc are important to be considered before investing to avoid major losses.
There are many myths regarding investments in the stock market but also many benefits come along with it. You should look on the brighter side and enter the world of investing with all the luck you possibly have. A good investment decision can do wonders and so equally disastrous if it’s a bad one.