For most young adults, managing their income is a hassle. Experts say when it comes to investing, most young people are lost.
Vineet Patawari, Co-founder and CEO, STOCKEDGE, a stock market analytics platform, says, “One must manage one’s finances and invest efficiently so as to generate returns.” For instance, investments can be made in a range of products like mutual funds, equity markets, debts, fixed deposits, physical gold, real estate and so on. All of these products have varying levels of risks and returns attached to them. It is usually advised to diversify one’s portfolio to reduce risks and optimize gains.
He adds, “Historically, it’s been seen that direct equity investments have given better returns in comparison to other asset classes and one can reap the benefits of the power of compounding if invested early.”
Below are some of the do’s and don’ts for the beginners in stock markets along with words of caution to avoid making losses.
The Do’s Before Investing
The stock market is full of uncertainty, risks and rewards. However, over long periods, equity markets are seen to give better inflation-adjusted returns. Before an individual starts investing, there are certain key things one must do.
Educating oneself – Nothing beats reading about stock markets from scratch, understanding investment styles, analyzing the company’s prospects and then taking decisions to invest, all by yourself.
Patawari says “If one is attracted to charts and finding patterns, then one should learn technical analysis. On the other hand, one can go for analyzing the cores of the company, understand financial statements and do valuations. This is called the Fundamental Analysis. One can even take up stock market-specific courses or general courses on finance like the CFA program to understand markets better and upskill themselves.”
Read Books, Blogs, Articles – It is important to have the knowledge and to update oneself with the happenings in the economy, domestic and global financial markets. The events affect the stock markets directly. Experts say, one should begin with reading financial newspapers and publications. Also, can watch different business news channels to get the latest happenings in the financial markets.
Follow good traders/investors – Experts say, a lot can be learned by observing and learning from players already in this field. Different investors have different styles, and one can zero-in on the style that suits them the best.
Read annual reports- The annual reports contain valuable information about the company. Patawari says, “For long term investing, one needs to know about the strengths, weaknesses, opportunities for future, and threats faced by the company in the industry.” All of this can be found in the annual reports of the company and help one take decisions.
Do Research- Patawari says, “It is best to do your own research, measure risks and rewards, study the past and future prospects and then invest.” This helps one take the calculated risk as well as make wise decisions.