How to start investing in stocks?
You may have heard some of the world’s best investors sing praises about investing in the stock market. Making wise bets on stocks of valuable companies can help you grow your wealth in the long haul. The same level of wealth generation is unlikely with investments in fixed income instruments.
If you are convinced about investing in shares and creating wealth but unsure of starting your investment journey, here’s a guide to help you.
What does stock market investing mean?
The stock market is a marketplace where company’s shares are traded in the public domain. Shares represent ownership in a company. When you invest in shares of a company, you become a partial owner to the extent of investment. You get voting rights, dividends if the company declares them and also profit from the increase in share prices.
You can buy and sell shares listed on any stock exchange. When the company grows, its share price increases, increasing your returns. When you invest in the right company, you stand a chance to make a handsome profit in the long run.
Why invest in stocks?
- The most prominent reason to invest in stocks is to benefit from the high return potential in the long run. Unlike fixed income instruments that provide low returns and may not even beat the rate of inflation, stock investing allows you to make considerable profit in the long run.
- If you invest in stocks of companies that pay regular dividends, you can create a regular source of income for yourself. This is in addition to the capital appreciation of the stock.
- Stocks are ideal investments for your long-term goals and wealth creation.
- You can invest in companies that you believe in. By doing so, you get a chance to be a part of a journey that you truly appreciate and understand.
How to invest in stocks?
Investing in stocks is not rocket science. Follow these steps to begin your investing journey immediately, and then you can learn more as you go along.
1. Open a Trading and Demat Account
To be able to buy and sell shares, you need a trading account and a demat account. With a trading account, you can place orders to buy or sell shares. A demat account is an online account where the shares you buy are stored. You can open a trading account and demat account with any SEBI-registered broker. Although you don’t need to open both with the same broker, your trading process becomes simpler if you have a trading account and a demat account with the same brokerage house. Some brokers also offer to open a bank account along with a trading and demat account, known as a 3-in-1 account.
Additional read: How to Open Demat and Trading Account?
2. Decide how you want to invest
You can invest in stocks yourself or hire professional services to select the stocks for you. If you believe you have the time to research and invest in stocks, you can do that through your trading and demat accounts. You can choose to invest in the stocks of a portfolio curated by experts. ICICIdirect offers multiple such portfolios with different investment objectives under One click portfolio. You can then buy these shares using your trading account. Alternatively, you could invest in equity mutual funds.
3. Pick the stocks you want to invest in
If you are investing by yourself, you need to create a portfolio blueprint and choose the stocks you want to invest in. To begin with, it is advisable to select stocks that have an established track record of good performance. Typically, companies that are part of prominent indices, such as the Sensex or NIFTY are good options for first-timers. Even you start your investment journey with Index ETFs. ETFs aim to create a similar portfolio as Index and offer similar returns. As you learn more about the stock market, you can invest in other companies and create a portfolio as per your investment objective and risk appetite.
4. Keep adding to your portfolio
To build a strong portfolio that can help you meet long-term financial goals, you need to be consistent with investing. Keep growing your portfolio and investing in more stocks over time. It is good to have a diversified portfolio with stocks from different industries. At the same time, don’t over diversify. It is best to invest in stocks of 10-12 solid companies. You can choose to invest in stocks periodically and use a Systematic Equity Plan (SEP) similar to SIP in mutual funds.
5. Monitor your portfolio
Take time out to monitor your portfolio regularly. Keep an eye on whether the stocks are performing as per your expectations. If any company is consistently underperforming, consider replacing it with a different company. Monitoring your portfolio allows you to ensure that your investments are performing well and can grow at the pace you expect them to.
Stock market investing is relatively simple if you know all the right steps. Knowledge about the stock markets can improve your investing skills tremendously. However, you should always have a thirst for knowledge and continue to learn more about the market to make sensible investments.
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