If you want to invest in stocks for the first time, there are a myriad of questions running through your mind like what are the things that I need to take into account before investing? How should I start investing in stocks? What type of research do I need to invest in stocks? What are the best stocks to invest in? Is there a way of making money in stocks without risking?
Luckily, you are not alone. Every investor asks themselves these questions. But there is no definitive answer to these questions. You have to find the answers yourself. There are, however, a few things you need to take into account if you want to start investing.
Research is vital if you want to invest in stocks. If you hate research, then you shouldn’t be a retail investor in the stock market. If that is the case, you should probably consider investing in mutual funds. These do have professional management and research stocks and invest on your behalf. Although mutual funds will charge you money for their service, they should give you more profit than stocks you buy without researching. But you will still do some research to identify a good fund.
Decide whether you should go for day trading.
Day trading is just gambling. The only sure winner here irrespective whether you make money or lose is your stockbroker. I’m yet to see anybody who has made consistent profits in day trading. This is a gamble that attracts many people who hope to make quick cash. However, most of them end up losing their investments. If your stockbroker knew of a method to make quick bucks in day trading, they would be doing it themselves. But they chose to do what guarantees them of good money, which is advising you to go for day trading. Futures and options are derivatives of day trading. Keep off from them.
Short-term vs. long-term investments
If you choose to invest for the short-term, you are basically gambling again. Let’s use this example to try and understand how short-term investment is akin to gambling. If you invest in stocks and you are convinced that its real value is higher than its present price and you hope to make money in future when the market fully realizes the true stock value. However, as is the case most often, the price of stocks also depends on the market sentiments and liquidity situations. Suppose the sentiments don’t turn positive and stock market crashes. The most likely outcome is that your stock will also tank with the market. As a short-term investor, you will have to sell our stocks at some time. If by then the market has not turned around, you will have lost your investment.
But if you were investing in the long term, you will have to hold onto your stocks. There are chances that the market will one day recover so that you sell your stocks at the right price, which is higher than what you bought it for. It is therefore clear that long-term investing gives you higher chances of making money on your investment than on the short-term. If you have a short investment horizon, then consider putting your money in safer investment avenues like government securities, Bank FDs etc.