Are you a COVID investor? Did the pandemic and sudden closure of all avenues motivate you to enter the stock markets?
If yes, we are sure you’ve witnessed a bull run when the markets soared after plunging 30% – 40% in March 2020. Markets have jumped over 100%, reaching new all-time highs. However, such a stellar run for two years in a row does not happen all the time.
Markets are volatile, and there can be periods when they fall, go up, or remain flat. It’s possible you may earn high returns followed by a fall in the value of your investment or/and times when there is hardly any movement in the stocks.
We are sure as new investors, you may follow other investor actions that may or may not be beneficial to you. The herd mentality of investors in the stock markets explains why Nifty companies were overvalued, the sudden Bull Runs or the steep falls led by panic selling.
The idea of quick money lured investors to the stock market. And the prolonged Bull Run during 2020 and 2021 helped them earn quick, staggering returns. But many fail to realize that sustaining such levels all the time is not possible. Most investors act based on speculation instead of thorough stock research.
The question is, are you looking for a quick buck or to create wealth. If you are like us, then you are someone who prefers long-term wealth creation.
Here are Dos and Don’ts of investing if you belong to a batch of COVID investors-
Dos of Investing
Learn more about Investing: It is not enough to be a part of the stock market. Understand the basics of investing, like analyzing the fundamentals of the companies listed and how to buy and sell shares based on reasons and not guesses.
Sign-up for an online program that will teach you more about cash flow, return on assets, profitability, and quality of the management to know if you can invest in the stock.
Start small: Do not put your entire savings or earnings in the stock market. Begin with small investments and then gradually increase your investment as you gain more knowledge and assurance. As a first-time investor, invest the smallest possible amount you can afford to lose.
Start investing early: The earlier you invest, the higher the returns and wealth creation. You earn both income and dividends from your capital with long-term investments.
Also, recover any losses you may suffer when you begin investing.
Research is the backbone of your investments: Many new investors complain of investing in a stock based on tips that may not be fruitful. Investors tremble when the markets move, and share prices fall. The lack of research and strategy are reasons for investing issues. The best way to avoid losses is to thoroughly research the company, its moats, opportunities, and prospects before you invest.
Invest your surplus only: Do not invest your savings or income; invest only that amount you have left after paying all the bills and household expenses. Investing in equities is not free from risks, and it does not guarantee consistent returns. So, ensure you can afford the risk when you invest.
Focus on the goal: Fix your investing goals and then plan your investments. Choose stocks based on your goals –like you wish for a large corpus in the next ten years or you want to create a fabulous retirement fund. Regular dividends and returns on shares will help you grow your capital. But setting investment goals will motivate you to focus on your goal, review your investments, and invest in a disciplined manner.
Diversify: Diversifying your investments across sectors will help you reduce the risks from fluctuations in the stock market. For instance, if you invest in 10 stocks and one or two stock prices fall, the loss is balanced via gains from the other stocks. It means your portfolio is not affected much.
Not just capital appreciation, but capital preservation is vital.
We’ve shared what you must do as a first-time investor.
Now Here’s what you must avoid for sure
Investing a lot of money: Investors have high expectations from the stock markets. They believe high investments will get higher returns. So, many investors, make the mistake of investing a large amount in a specific stock.
Timing the market: Many investors try to predict the ups and downs of the market to invest in. However, no one can predict a good or bad day at the market or if a stock will go up or down. Doing so will increase your risk of losses. Avoid timing the market. Instead, spend time in the market to get the returns you seek.
We hope you will keep these points in mind when you invest in the market. It pays to stay invested for the long-term because that’s when the magic of compounding works better.
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Read more: How Long-term investing helps create life-changing wealth – TOI.