Table of Contents
Overview of the Stock Market Earnings:
A stock market, equity market, or share market is a place where buyers and sellers of equity shares, bonds, and other financial instruments of listed or unlisted companies meet. It’s the market for equity dealings.
These securities can be traded publicly or privately. For example, shares of private companies can be sold to investors through equity crowdfunding platforms. Typically, investments are made with a certain investing plan in mind.
The promise of significant profits will always attract investors to the stock market. But trading equities is not easy, despite the fact that many individuals have become wealthy doing it. Having the self-discipline and patience to do the necessary research and learn the market inside and out is essential.
Ask any financial professional for advice on how to invest in the stock market. They’ll tell you it’s tough work since it often requires reading financials, technical charts, and analyzing historical data.
In addition, the stock markets have been extremely volatile over the past several years, leaving many investors uncertain as to whether they should sell or stay on to their current stock holdings. There is no foolproof method for making money in the stock market, but there are a few guidelines that may be followed to improve your odds.
And, in this article, we’ll see what those guidelines are that help us generate income in three (3) ways from the stock market.
Five (5) Guidelines for Stock Market Beginners:
The benefits of early investment are substantial. The passage of time allows you to not only strategically plan your investments but also allow them to accumulate into a nest egg large enough to support your life’s aspirations. Simply put, compounding is the process of reinvesting one’s earnings in order to accelerate one’s rate of return on investment.
For example, your one-time investment of Rs. 1 lakh will turn into Rs. 2.59 lakh at a 10% annual growth rate in 10 years. This is possible because your initial investment of Rs. 1 lakh will earn 10% per year.
Investments increase in value tremendously due to the miracle of compounding (when interest is gained on previously accrued interest and earnings). Even a small quantity can rapidly expand if left alone.
While the stock market experiences ups and downs, it has traditionally appreciated—that is, gained in value—over the long run. A long-term time horizon mitigates the volatility associated with short-term market dips and decreases.
Hence the phrase “invest for the long haul. Don’t get too greedy, and don’t get too scared.”
Basically, there’s no substitute for long-term investing. Especially when we talk about equity investing. Remember, when in doubt, just zoom out!
You must invest on a consistent basis, with a small amount each time. Invest in the stock market via a SIP route (SIP stands for Systematic Investment Plan) or invest in a timed manner in any instrument every month. With the use of “autopilot” investment, they hope to amass riches over time.
Making investments may not always be easy. Attempts by seasoned investors to buy at the most advantageous times of the market often fail, aka, timing the market will almost never work! Hence, when dealing with volatile markets, dollar-cost averaging (or, let’s call it rupee-cost averaging) can help by spreading out your purchases over a longer period of time. A disciplined, consistent investment schedule is reinforced.
With rupee-cost averaging, you invest a certain amount of money in a security on a regular basis over a set time period, regardless of fluctuations in the asset’s price. Rupee-cost averaging is a way for investors to spread out the cost of buying shares over time. This can help reduce the effect of volatility on their portfolios.
Being consistent, be it in investing or trading, is being disciplined.
Be it trading or investing, do not try to pick stocks on your own. Especially if you are not interested in learning the process and are in this venture just to make money (like most of us).
Financial professionals are paid to “manage money,” and when you invest in a mutual fund, exchange-traded fund, or other managed fund, you gain access to their knowledge, experience, and analysis.
In other words, delegate the driving, to the assigned driver while you sit in the back seat and work your work. Investing in mutual funds also provides the benefit of diversification—their portfolios typically contain dozens, if not hundreds, of various stocks, which helps mitigate risk.
If you’re an investor, you shouldn’t invest all your money in one place. Certain types of investments may prove more successful than others over the long term. You may feel some pressure if most of your wealth is invested in a single asset class and that asset class experiences volatility.
Remember that diversification is a method for lowering your overall exposure to investment risk. You may still run the risk of losing money if your investment’s value drops. But the effect that drop has on your entire portfolio is minimal.
Moreover, portfolio management makes use of asset allocation methods. Professional financial advisors will ask you questions designed to help them determine which asset classes are most compatible with your needs based on your goals, time horizon, and risk tolerance. Asset allocation via diversification is a method for controlling investment risk. Although the possibility of financial loss due to a drop in the value of an investment is not eliminated, it can be minimised to a certain extent.
Ways to Earn Money from the Market:
Investors can earn via the stock market mainly in three (3) ways, as mentioned:
- Buy-and-Hold Investing. We call it Long-term investing.
- Interest or Dividend on Investments.
- Trading in the open market on a regular basis.
Under long-term investing, an investor is required to buy investments (equities) in listed companies and stay invested for a period of 1 year or more. Such investments are known as long-term investing. Investors earn when the stock value rises over a period of time.
Chances are, the investor can also lose money from their investments when the said investments drop in value. In such a case, the loss will be termed a ‘Capital loss’.
It is suggested to invest in companies with strong financial figures and proven track records and stay invested for as long as possible to gain maximum benefit from the investments made. For more information, check out this article CLICK HERE!
As the company you have invested in makes money, the management might decide to give a part of their earnings (profit) to investors. Such proceeds in the hands of investors are called ‘Dividends’.
Some investors go to the next extent where they invest in stocks just for the sake of their Dividend. Such investing is called “Dividend Investing”. Know more about Dividend Investing here, CLICK HERE!
Almost all long-term investors can earn money via dividends, given the fact that the management of the company they have invested in approves dividend payments. Because it’s the responsibility of the management to do what’s right for the company.
If dividends are not issued, the said amount can be reinvested by the company for better results at a later date. And, in this case, investors who get dividend earnings can decide to reinvest the income or spend the amount as and when they receive dividends.
Apart from long-term investing and dividend income, investors in the stock market can earn money on a short-term basis through various trading strategies such as “intraday trading’, “swing trading’, “scalping, “position trading’ etc.
These strategies are riskier than long-term investing, but if done right, they can be a good source of revenue for the participants.
View Stock Market as a tool to build wealth. As a means to own some of the strongest and wealthiest companies to own and invest in for the long term.
In the short term, with the volatility in the market, you may make money or lose it. But, in the long run, if you invest in financially sound companies, each and every one of you will make money.
In the stock market, our main goal should be to create wealth from it. This can be done if you start investing at a very young age and stay invested for at least 15–20 years. This way, you as an investor can experience the 8th wonder of the world. Aka, the power of compounding.
For More Information, Check this Video:
Disclaimer: All the information on this website is published in good faith and for general information purposes only.