Investing is an important activity in one’s financial life. Without investing, it becomes difficult to grow your ‘salary’ into ‘wealth’. Here are Investment Tips you must know…
If you do not invest (why though?), you’ll just get hold of your salary every month. Nothing extraordinary.
However, if you indulge in investing, you have a chance to multiply your salary. And this multiplication of salary is what will constitute your wealth.
Moving on, this article talks about the four most important things investors should know.
Basically, this article is aimed at preventing you from making common financial mistakes that beginners usually do.
Beginners usually take initial profits in investing in their head. (I’m not even exaggerating!)
Thinking that they are actually good at it, they start buying and selling stocks very quickly. They start conducting two-three deals a day.
But what they often tend to forget is that investing has two sides to it: making money and…losing money!
Most of the times, people who tend to get too excited initially, face losses in a later deal and all their profits tend to go away.
You must avoid being this individual. Read on to find out some valuable investment tips.
1.Investing and Trading are different concepts
It is important to understand that there is a difference between investing and trading/speculating.
While investing is a well-thought, carefully analyzed and ‘backed by logic’ activity, speculating is an almost blind gut feeling.
Investing is long-term whereas speculating is dangerously short-term.
Also, while we are on this, long-term investments are those which exceed the time span of at least one year. And, obviously, short-term investments are those which are held for less than a year.
Instead of trading hastily, buying and selling the same day, etc., come up with a concrete investment plan that has a better risk-return ratio. Most important investment tips.
2. Be Mindful of Taxes
Now, you must know this that whenever you earn additional income off investments, you have to pay taxes on that as well.
Yep, that’s true and sad. (But desh ke liye itna toh kar hi sakte hai!)
Paying taxes results in a loss for you in two ways: One, your immediate earnings go down and two, this tax amount could have been potentially reinvested.
While there is no escape from paying taxes, you can sure do a few things (legally) to pay lesser tax.
While we won’t go into many technicalities, here are a few investment tips:
Let’s consider a situation: suppose you earn Rs.50,000 from investments in a year. You’ll be charged tax on it at a higher rate as opposed to if you would have earned this amount in a greater span of time.
Therefore, the moral of the story is to go for long-term investments.
Also, you can invest in tax-saving investment options as prescribed by the government to save major taxes. Investing up to Rs.1,50,000 in these investments like PPFs, certain mutual funds, etc. is tax deductible.
The mantra for investing is: diversify, diversify and diversify.
Many individuals think of investing all their money into a seemingly lucrative option. A single option. If by God’s grace, that stock goes up, they’ll be rich. But God forbid that stock goes down, I can’t even begin to imagine the extent of their loss financially and mentally.
Rather than picking a single stock option, invest in a multitude of options. It doesn’t matter how less you invest as long as you have a diversified portfolio.
This way, if one stock is doing poorly, at least two other stocks are performing well thereby balancing out your risk.
This goes well with the saying, “Don’t put all your eggs in one basket”. If you have a portfolio which consists of a wide range of securities, it will work as a shield against huge losses for you.
4. Give Time to the Market
I know that everyone, in the beginning tries to spot the correct price in order to buy or sell. In fact, in the race to grab the ‘correct price’, they even sell off their supposedly long-term investments.
Even then, they end up noticing that the price went further up at which they sold.
So, how to avoid these kinds of things while investing?
By giving time to the market.
This means that you must go in for long-term investing. Give time to the market. Observe it. Then grab the best price.
If you think about it, you will feel that it is easy to buy low, sell high. No big deal.
But unfortunately, you are wrong. Markets do not work like this IRL.
In real life, markets witness dips, crashes and of course highs as well. Therefore, in order to balance out the dips, it is essential to stay in the market long enough to enjoy highs as well.
Bonus Investment Tips: Basic Concepts of Investing in Stocks
Before you go shopping in the stock market, it is essential you first understand the logic behind some of the everyday terms in the Indian stock market.
Deciding which security to invest in, when to buy it and when to sell it can prove to be very difficult, especially for beginners.
But if one has the knowledge of technical and statistical analysis, the whole investing procedure will seem like a breeze.
1. Identify the trendline
Trendlines are those lines which are used to depict the rise or fall in stock prices on a graph. They signify what is known as the price pattern.
Identifying a pattern or trendline is the first task you must learn.
2.Support and Resistance Levels
Support level implies the bottom boundary whereas resistance level implies the top boundary.
These two levels simply suggest that a stock’s price is not likely to fall below its support level and likewise, it’s not likely to rise beyond its resistance level.
When the price of a security reaches its support level (i.e. predicted bottom-most level), it is believed that the market is currently bearish in nature. Hence, it is considered an ideal time to buy that security.
Similarly, when the price of a security reaches its resistance level (i.e. predicted top-most level), it is believed that the market is currently bullish in nature. Hence, it is considered an ideal time to sell that security.
3. Historic Trading Volumes
Volume means the number of transactions in a particular security which, taken place at a particular point of time, irrespective of buying or selling transactions.
At the base of the X-Axis (i.e. the horizontal axis) of the graph, you can see some little, vertical lines. These depict the volume of that particular security at a particular point of time.
The volume usually increases dramatically when there is significant news (positive or negative) about the organization.
At a point when the volume is expanding, it can likewise move the price of the stock rapidly.
With high volumes persisting in the market, you can be witness greater ease in buying and selling stocks. This is because if a lot of people are trading that day, you will find a buyer/seller quite quickly.
So, what are you waiting for? Start using these investment tips and earn loads and loads of cash with the help of investing and Bachat. (Enough to host an Ambani-like wedding or rather festival!)