basic of investing

The Ultimate Guide To Basics of Investing

 Most of our country’s money is being stored in saving accounts. We have been taught to save money but not how to grow that money. Due to a lack of knowledge about the basics of investing only 4% of the population directly invests in equity or stocks.

On the other hand, a country like the USA has more than 50% of an active investing population. Most of our parents compare the stock market to the gamble. But be it the Indian or American stock market both have consistently given handsome returns for many decades.

In this blog, you will get to understand the basics of investing and the mistakes you should avoid in the stock market.

1. Don’t wait, Start invest

Most people don’t start investing until the age of 40 to 50. I have to look at my kid’s school fees and family’s expenditure are their usual reasons, they are not wrong.

The younger generation has different reasons not to invest, the dearth of money is most common.

Surprisingly, even when you invest a small chunk the power of compounding can multifold your pocket money.

Believe me, your biggest advantage is that you are young!

2. Pain in short term, gain in the long term

We always had the culture of saving money but sadly we are following the consumption mindset of European nations. The pain of living a minimalist life can make your life financially independent.

Instead of buying Fortuner if you buy a used Swift Dzire car then the money you saved can be invested in stocks and for the rest of your life your money will make money for you.

But exactly the opposite happens with people. They buy the luxurious car on loan and keep paying it for years.

3. Bonds vs stocks

Buying bonds means you are lending a loan to the company or the government. The government bond is a considerably safest investment because the government can never go bankrupt as they can print as much money they need.

If you buy the bonds of ITC, like its stock you don’t get dividends or appreciation in bonds. Historically stocks have outperformed bonds. So, if you are young then investing in equities makes more sense.

4. You won’t lose money until you sell the stocks

Great returns come with great risk. You may face a situation when your favorite stock would go down more than 50%. Even investors like Warren Buffet, and Rakesh Jhunjhunwala have lost money in the stock market.

In difficult times when everyone would be skeptical about the economy and stock market then obviously it will impact your decision.

Source: seekingalpha.com

The mindset of the average investor is of an impatience nature. In the fear of losing all their money, they sell their stock at the price far below what they actually bought it.

Practically, you won’t lose money until you sell that stock. So, if you hold stocks in difficult times then the probability of making profit increases as the stock market historically goes upward.

5. Invest in your company

The first company you should look for research is where you work 9 to 5. Yes, you will understand your company more than any analyst on Dalal street does.

I know you are thinking, what if the company where you work is not listed on a stock market or you don’t work at the company at all? I have a solution for you After an employee the one who understands the company very well is none other than its customer.

6. Look forward not backward

Multi-millionaire investor Ramesh Damani lost all of his money in the stock market when he was just starting out.

When asked about the reason he exclaimed, “I invested in the companies which have done well in the past like gold, silver or commodities stocks”. From that failure, he learned the valuable lesson that the stock market always looks at in the future.

When he came back to India, he was one of the few early investors in Infosys. He was confident that the Indian IT sector will flourish in the future. Today Infosys has given more than 15,000% returns to its shareholders.

For beginners in the stock market, one should know all the basic terms related to the stock market. So, don’t forget to read the blog on the same.

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