10 Things New Investors Keep in Mind Before Investing in Markets

Prudent investment in stock markets can help you grow wealth and build a corpus for essential life goals. However, deft investments require factoring in certain things that can help navigate volatility and mitigate risks. If you are new to markets, here are ten essential things you need to consider before investing.

Essential Things to Keep in Mind

1. Know Your Financial Goals

Before investing, having a holistic view of your financial goals is crucial. Ask what you want to achieve. Are you investing for a short-term goal like buying a car or a long-term like retirement?

A holistic view of your goals can help you decide how much you want to invest and the kind of risk you can take. Clear objectives can help you stay focused and motivated, especially during market turbulence.

2. Assess Your Risk Tolerance

This is another vital consideration. Find out how much risk you are comfortable with. Everyone is different, and we do not all have the same appetite for risk. While some of us have an aggressive outlook, others may be jittery even with the slightest hint of volatility. You can opt for stocks if you have a high-risk tolerance.

On the other hand, if you’ve a moderate or low-risk appetite, you can opt for bonds and debt mutual funds. Hence, it’s vital for you to gauge your risk appetite correctly and invest in instruments aligning with them.

3. Educate Yourself on the Basics

Getting your basics right goes a long way in scripting investment success. Familiarise yourself with the common stock market terminologies and take the time to understand how markets work.

There is ample material available over the web to help you grasp stock market knowledge. You can learn from blogs, webinars and educational videos to get a hang of things.

4. Start Small

It’s vital to test the waters before investing; hence, newbies should start small. Monitor the performance of your investment and increase the amount gradually. To put it otherwise, invest an amount you won’t regret losing.

When new to investing, you should aim to gain valuable experience without risking your capital. As you learn and your investments perform well, you will gain much-needed confidence going forward.

5. Diversify Your Investments

Don’t put all eggs in a single basket is a common saying in markets. This means you shouldn’t put all your investment into a single financial instrument but rather distribute it. For example, if you have ₹10,000 to invest, you can invest ₹ 3000 in stocks, ₹4000 in bonds and the remaining ₹3000 in exchange-traded funds.

Diversification helps minimise risk and ensures your portfolio’s performance doesn’t depend on a single asset class. It provides stability to your portfolio, especially during market turbulence and prevents the gains from quick erosion.

6. Avoid Timing the Market

The easiest way to make money in stock markets is to buy low and sell high. However, even the most seasoned investor can’t predict markets with precision.

It can be tempting to wait for the right opportunity to enter and exit, but time in the market is more important than timing the market. Stock market investing is akin to test match cricket, where patience gets duly rewarded.

7. Don’t Invest Emotionally

Never invest in emotions. Emotional investing can more than not backfire. For instance, a market boom may be tempting to buy more, whereas a downturn may prompt you to sell.

Restrain yourself from making emotional decisions and adopt a disciplined approach based on logic and research. Develop a robust investment plan and stick to it.

8. Keep Yourself Updated

It’s vital to keep yourself updated with the latest domestic and global events affecting markets. Several developments affect markets, and keeping a tab on them can help you formulate a solid investment strategy. Equally important is to shut off too much external noise and follow your plan.

9. Don’t Invest Following Hot Tips Shared on Social Media

Today, there is no shortage of tips and tricks being shared by so-called stock market gurus on social media. It’s crucial not to base your investment based on these tips.

Instead, you should focus on your goals, do your research and invest accordingly. Blindly following investment tips on social media can do more harm than good and lead to bitter investing experiences.

10. Be Patient with Your Investment

You need to be patient with your investments and not get bogged down due to short-term market blips.

If you have invested in a fundamentally sound stock, more often than not, it will yield the desired results despite challenges. However, any knee-jerk reaction can be a major blow to your plan.

Conclusion

Investing in markets is akin to running a marathon and not a sprint. It warrants patience, discipline and constant learning. Following these ten tips can help you start confidently and navigate market complexities.

You can subscribe to the HDFC SKY Youth Plan to kickstart your investment journey right away.