To minimize risk, diversify your investments across a variety of products. Gains on other investments can offset or compensate for losses on some investments in this way.
BE AWARE OF YOUR RISK PROFILE:
It would be best to decide how much risk you are willing to take as an investor. Your investment product choice should be determined by your requirements and the amount of capital you have available, as well as your risk tolerance. If you are a risk-averse or risk-prone investor, you may choose an investment accordingly.
RESEARCH BEFORE INVESTING:
Investing well requires gathering and understanding all relevant information about the investment. As part of this process, it is necessary to study companies’ annual reports, accounts, and other statements. In addition, keeping abreast of what is happening in the said sector or industry is necessary. For market information regarding shares, you wish to purchase or sell, contact your investment adviser/ stockbroker. Investing should not be influenced by anyone’s grave but by unfounded recommendations or rumors.
PLAN LONG TERM:
An investment in shares does not necessarily lead to immediate profits. Don’t invest money that you may need right away, as shares can go down in price, so you may not be able to sell them when you need liquidity. Research has shown that investments made over the long term are based on analysis and study while considering news and research reports on individual stocks, resulting in positive returns.
When to act, however, is the challenge. It isn’t accessible to the market, but investors should try to buy when the upswing has begun and sell when the downswing begins.
DON’T FOLLOW THE HERD:
Two emotions drive the stock market: greed and fear. The boom hype usually leads people to overpay for shares. It is greed that drives bull markets. Don’t let greed become your need. When there is a bear market, people get carried away with pessimism and are eager to sell their investments, believing the worst rumors. The fear that dominates bear markets is this one.
STAY AWAY FROM SCAMS:
It would be best if you were wary of promises of quick profits or sky-high returns. A higher return on investment comes with a higher risk, so investors should be aware of that. A fundamental risk/reward trade-off exists here.
MONITOR THE PERFORMANCE OF THE STOCKS:
Investors need to keep an eye on the performance of their stocks. A company’s stock performance may rise or fall due to fundamental changes, such as structural or financial changes. Like seasonal or circumstantial booms, companies can experience better stock performance during boom times.
INCOME TAX & COMMISSION:
The Federal Board of Revenue/Brokerage firm’s tax and commission rates affect your costs and, consequently, your returns as an investor. The taxes deducted from trading transactions must be taken into account by investors. Contact your brokerage firm for details about current taxes and charges.
Stock Investment Basic Concepts:
DIVIDENDS & DIVIDENDS YIELD:
The dividend is the return a company pays to its shareholders out of its profits. A company can pay dividends more than once a year.
A cash dividend provides a measure known as Dividend Yield. The dividend yield is a financial ratio that compares the number of cash dividends a company pays to its share price. To calculate dividend yield, divide the cash value of the dividend by the share price. In percentages, it is defined.
EPS (earnings per share):
This ratio calculates a company’s net profit after tax by the number of shares outstanding. Each share is a measure of the company’s earning capability.
PRICE EARNING RATIO (P/E):
Divide the current share price by EPS to calculate an EPS ratio. This valuation measure shows whether a share’s price is realistic and in line with its earnings. Over-priced shares will have high ratios, while under-priced shares will have low ratios.
Compounding is reinvesting capital gains or profits to generate additional earnings over time. The initial principal and accumulated earnings from the previous period form the basis for the earnings generated from this investment.