The Indian stock markets are currently at an all-time high and can be considered to have a bullish trend. This can lure many new investors to enter the share market and try their luck as a primary or alternate source of income. However, seasoned investors and traders know that every bullish trend is followed by market correction and hence, they make cautious and informed investment decisions, unlike novice investors. This warrants one of the most important questions in stock market investments, ‘What is the ideal time for stock investment?’
Given below is a discussion that can help investors understand the basics of stock markets and the right time to invest in stocks.
Some of the basic rules to consider while investing in stocks are mentioned below.
a. Understanding the basics of stock markets
The first and foremost requirement for investment in stock markets is understanding its basics. This includes understanding the various terms related to stock markets and their implications on the individual portfolios. It is important to evaluate the target sectors and stocks as well as analyze the impact of every development in the sector at macro and micro levels.
b. Understanding the market trends rather than timing the market
An important factor to understand while investing in stock markets is to never try to time the markets. Seasoned investors understand clearly that timing the market trends and their movement is futile as the market may not always react in the predicted manner. Many factors influence stock prices and market trends which need to be understood carefully to analyze.
c. Having a diversified portfolio
Investors need to have a diversified portfolio. The main advantage of having a diversified portfolio is that the overall risk of the investors is spread. Also, the returns of the portfolio are increased with the advantage of investment in different securities and sectors.
d. Set realistic goals
Setting realistic goals is important for the investors to not be influenced by seasoned investors that have huge experience and expertise. This helps them in aiming for quality stocks and not make rash decisions that can lead to potential losses.
e. Make realistic return expectations
It is necessary for the investors to make realistic returns expectations. This will help them in making sound and practical investment decisions and not get carried away by the portfolio returns of their peer investors.
f. Stay away from the herd mentality
One of the most dangerous outcomes while investing in stock markets is shaping one’s portfolio based on a herd mentality. It is common for most investors to sell their stock at the slightest downfall in the market or start buying new shares in an upward trend of the stock market. It is essential for the investors to have their research and analysis to cater to their specific risk-return parameters.
When is the right time to buy stock investments?
The right time to invest in stock markets can be different for every investor based on many factors. Some cases which can be the right time to buy stocks are mentioned below.
a. After having a good base capital for investment
One of the most important requirements for investment in stock markets is having a good capital base. It is necessary to understand that investment in stock markets has to be done with surplus funds at least in the initial days till the time the investors gain enough confidence to generate decent returns. Investing in stock markets by using surplus funds helps the investors navigate their routine financial obligations with ease.
b. Pay attention to market rumours
Investment in the share market is often based on many news and rumours. While it is risky to act on every rumour, investors should also not completely ignore them. When a company is about to declare dividends, the markets are abuzz with the increase in the share price of such stock. Most investors tend to buy the stock on such occasions before the declared date to gain the advantage of dividends. However, it is also important to pay attention to the fundamental analysis of such stocks to back their decision-making process.
c. Take advantage of market uncertainty
Taking the right advantage of market uncertainty is also one of the better times to invest in stocks. Market uncertainty may lead to many blue-chip stocks trading at a relatively lower price. This can be the right time to invest in such stocks and increase the value of the portfolio. Most blue-chip stocks or large-cap stocks are usually fundamentally quite strong and have sound business models. Investing in such stocks at a relatively lower price is one of the ideal times to invest in stock markets.
d. Invest early
One of the key rules of building a substantial portfolio is investing early. While there is no time limit to start investing in stock markets, most experts believe that investors should start building their portfolios in their 20s. This will enable them to have a good corpus fund that can help them be financially independent in their retirement.
Conclusion
Investment in stock markets has attracted many investors who try to build a profitable investment portfolio over time. In the stock market, there is no such thing as an ideal time to invest as every bullish and bearish market is an opportunity to make profits if analysed correctly. Hence, the key to having a profitable portfolio is investing early as well as investing regularly after considering the price movements and the risk of each security.
FAQs
Some of the common ways to reduce risk in stock investment is by having a thorough fundamental and technical analysis of the stocks, investing in different sectors, etc.
the prime disadvantage of starting investment in stock markets is the limited corpus fund that will be built in the limited time frame of investment. Also retirement is a phase when you would like to conserve your funds by investing in safer instruments rather than taking risks by investing in the stock market.
The most appropriate time to book profits in share markets is to sell the shares when their prices are high and to buy them to sell at a later date when the stock prices are at a lower end.
Yes. A Demat account is to be opened mandatorily with a registered broker for investment in shares.
The basic tools to analyze a stock is their fundamental and technical analysis through various key ratios (PE ratio, PB ratio, EPS, Dividend Yield ratio, etc.) and moving averages, bar charts and candlesticks, etc. respectively.
