Do’s & Don’ts of Stock Market Investment

If you’re religiously following the do’s and don’ts of the while risking your money with stock Market investment, garnering profits might not be a tough road. However, keeping the lack of financial education in mind, many investors, especially beginners, end up doing what should have been avoided and vice-versa.

Since Investing in this volatile market can be nothing less than a wild ride, it is recommended that you already pull up your socks before taking your hard-earned money for granted. In this post, let’s find out some of the basic, yet equally important, do’s and don’ts of the stock market investment.

1. Do Get Educated

Possibly, this one is the most relevant Factor that shouldn’t be neglected at any cost. If you want to be successful and earn a satisfactory number of profits without losing much, begin by learning and understanding the market.

To do so, self-education is a perfect way. On the internet, you can easily get access to tons of information. There are even plenty of educational platforms allowing you to enrol in the best online stock market courses for beginners.

2. Don’t Trust Free Recommendations & Tips

The moment you step into the stock market, whether for investing or trading, your inboxes will be flooded with buy/sell calls and messages. However, one thing that you must remember is that there is nothing that comes without any cost.

Why would anybody be interested in giving you tips for multi-bagger stocks without charging anything? In this market, you’ll have to be extra cautious and alert. Thus, never trust any free recommendation or tips blindly.

3. Do Start with a Small Amount

If you’ve just started cooking, you won’t risk a dish with complex ingredients, right? Same is the scenario with the stock market. When beginning the investment, experts recommend to always start with a small amount.

Invest with the lowest possible amount. And gradually, with more knowledge, understanding and confidence, you can increase the investment accordingly.

4. Don’t Keep Unrealistic Expectations

Of course, there are a lot of investors who managed to successfully make up to 400% to 500% of return on a single investment. While such type of news gets circulated quickly, the fact that doesn’t come into the limelight is the hard work, dedication and the number of losses these investors had already experienced to gain a massive return.

Thus, when you are starting, keep realistic expectations when investing in stocks. A return that is anywhere between 12% to 18% in a year is quite decent. On top of that, when you’ll compound this return over several years, you’re going to get way higher returns.

5. Do Start Early Investment

There cannot be enough emphasized on the importance of starting early with finances. When you begin an early investment, time always remains in your favour. Moreover, with such a strategy, you have enough time to recover losses.

6. Don’t Follow the Herd Mentality

Suppose one of your acquaintances made 70% of returns from stock in a year. Now the person doesn’t stop boasting about it, compelling others to invest in the same stock. Are you going to follow his lead?

If yes, you may end up on the wrong path. So far, no successful investor has touched milestones by Following the Herd mentality. Thus, it’s better that you do your own research, put your thoughts into a decision and then make an investment.

7. Do Proper Research

One of the primary reasons why most of the people don’t make enough money is because they don’t invest initial efforts in researching. Before you choose a company to invest in, make sure you research on every aspect of it.

Right from the fundamentals of the company to the financial statements, ratios, losses, profits, management, and more such data will help you avoid regrets later.

8. Don’t Avoid Physiological Biases

While investing, you might come across a variety of physiological biases that may adversely impact your investment decisions. Along with that, it may also leave negative effects on your ability to make cautious choices.

Most of the biases, such as Buyer’s Remorse, Anchoring Bias, Confirmation Bias, Superiority Trap and more are pre-programmed; thus, it might be a bit arduous to get noticed by people. Knowing these biases will help you prevent serious damage.

9. Do Invest Only the Surplus Amount

The stock market, undeniably, provides an array of opportunities to invest in leading companies and make money out of them. But with opportunities, the risk factor remains equally high. And, returns are not always guaranteed.

Moreover, the situation of a Bear Market (bad times) may last for years altogether. Thus, make sure you are only investing a surplus amount and not cutting down on your livelihood with a hope to make it big in the market.

10. Don’t Take Unwanted Risks

Investing your entire money in a hot Industry or a hot stock is a move that can never be regarded as a wise one. As much as you’d like to generate high returns, keeping the money safe should be your priority as well.

Hence, it is not necessary to take risks that you are not sure of. While investing, you must keep your risk-reward balance intact.