The stock market, despite its volatile and risky nature, allures most individuals, especially for wealth creation in the long run. You will also hear about stock investments as one of the key investments to create long-term wealth from financial experts.
There are several rags-to-riches stories in the stock market about investing prudently in the right stocks and making significant profits following strategies. Let us understand basic strategies to make money in stock markets.
How to Make Money in the Stock Market- Strategies
Buy and Hold
Successful long-term investors say that being patient in the stock market beats timing the market. The stock market has provided 9.9% returns annually for long-term investors. But, if you trade (frequent buying and selling), you miss out on your opportunities of making strong annual returns. Investors who missed the 30 best days during a period had an average loss of -0.4% annually in the market. However, it is hard to predict those best days of strong performance. Therefore, instead of trading, adopting the buying and holding strategy is one of the common ways to make money from stocks or other securities. Individuals who engage in trading on a daily, weekly, or monthly basis tend to jeopardize those annual returns. You need an online demat account to hold your financial assets as long as you want.
Understand Your Investor Profile
The following aspects will help you to identify your profile:
Financial goals: Define – what are your financial goals to achieve. Retirement corpus? Children’s education? Marriage? Home? Your goal will be to find out the right kind of stocks to invest in.
Risk tolerance: Determine how much risk you can handle in a volatile stock market without panic.
Investment horizon: Determine the period to hold investments in the stock market. Based on your financial goals, stock investments can be made for the long-term or the short term.
One of the benefits of demat account is you can hold as many financial assets as you want to meet your financial goals. If it is a regular demat account, there will be no limitation on its holding value.
Research for a Range of Factors
Investors need to perform thorough research considering several attributes of a company. It will help to know its strengths and weaknesses. Look at its legal, financial, and competitive aspects instead of getting influenced by others’ understandings. Research well about –
- A company’s past financials
- Its growth prospects, current policies and projects
- It’s profitability
- Its management quality
- It’s financial ratios, like the Debt-to-equity ratio, Price-to-earnings (P/E) ratio, etc.
Many companies pay their shareholders a regular dividend from their net profits. It may seem like small amounts when you first start investing, but it can be a significant portion with reinvestment. You can consider reinvesting your dividend. Each dividend you reinvest buys you more securities, which helps increase your returns with compounding even faster. That’s why many financial experts suggest investing in stocks long term and reinvesting their dividends rather than spending. Also, you may have sold the stock and earned significant profits, but it does not mean you must spend your returns. You can take advantage of these returns by reinvesting. Earn more with compounding power.
Investments in Funds Over Individual Stocks
Diversification is a time-tested investing strategy. Investors understand that it can reduce the risk and also, has the potential to boost your returns over time. Individual stocks or stock funds are the two most considered investments by investors. Typically, experts suggest the latter, considering the diversification benefits. You need to buy many individual stocks for diversification. You can find it automatically in funds with an option for investing small investment amounts periodically.
Invest wisely in the right kind of stocks and make higher profits. The investing judgment depends on your risk profile, experience, and investment horizon. Follow the rules, take a risky position only when your financial plan permits, and have ample patience for a successful investing journey.
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