2021 is quite a potent year in the stock market for beginners. The market in the previous year saw a financial crisis which was quite unprecedented. Now that the vaccines are making way to relieve the world from COVID-19, the market is instilled with new hope for growth. It will still take quite some time for the stock market to get back to the pace it boasted of prior to the pandemic. Nevertheless, the fact that it is coming out of the pandemic crisis is more than a consolation. Especially when one realizes that Sensex and Nifty are running on an all-time high. You can read more about on this page.
This is a ripe time in the stock market for beginners. By investing from a young age, your chance of getting returns increases even further. The price of many shares have fallen down and with the right understanding you can carve out a good investment strategy for yourself.
There are, however, certain things you should keep in mind while investing in the year 2021.
1. Follow The Union Budget
Follow the take on the Finance Minister’s Union Budget for the year 2021. The stock market for beginners can start to make more sense when they figure out how the government is going to spend on different sectors.
For instance, if the government has decided to spend heavily on healthcare infrastructure, then the young investors should try to put their money in one of the companies belonging to this sector. This is because the funding of a particular sector increases its probability of thriving.
So your chance of getting higher returns increases by investing in these companies. However, this by no means is a fixed rule. How a company is going to perform is something which cannot be predicted 100% accurately.
2. Diversify Your Investments
The stock markets for beginners can either lead to high success or absolute failure. Most young investors start their investment career by purchasing shares of a single company. If this company does well then all is good but if not they face heavy losses just as well. This way of investing makes it a sort of gambling.
By distributing your investments in multiple channels your risks will be balanced out.
What you can actually do is that you start investment by diversifying your portfolio. Buy stocks of different companies, buy mutual fund units as well as ETFs. By doing so, your level of risk will be significantly mitigated as you will not be reliant upon the whim of a single company. If from one place you face a loss, a profit from another can balance it out. Diversification is one of the safest ways in the stock market for beginners.
3. Give Time To Your Investments
Investments do not reap profits overnight. If the stock market for beginners is a place to make an instant profit then they are in the wrong place. While you invest, you should keep in mind that this is being done to secure your distant future.
The share market is quite volatile. It may be the case that the shares you have bought perform poorly at present but can gradually start to improve in the near future. For instance, Amazon.com, INC witnessed a fall in their growth rate where their annual revenues went down from 30.93% in 2018 to 20.45% in the year 2019. But again in the year 2020, the revenues soared up to 43.59%.
Therefore, giving time to your investments can be highly rewarding in the stock market for beginners.
4. Regular Contributions
There is no point in investing if you barely keep up with your contributions. It can be understood that not all people can keep up with the expenses of investment but there are schemes such as Systematic Investment Plan or SIP in mutual funds, where you can pay a small amount regularly from your monthly salary. The minimum investment amount can be as low as Rs 500. By doing so, you will not only be keeping up with your investments but will even be able to keep your monthly budget stable. This way both your present and future will be secured.
Investment does not require a lump sum amount. Regular small investments can also do the trick.
5. Penny Stocks
The stock market for beginners opens very few possibilities as young investors usually do not have enough funds to start with. One option which stands clear in front of these investors is that of the penny stock. Penny stocks are those shares which are sold at a much lower price but for a reason. These stocks belong to the companies who are running the risk of going insolvent or have low market capitalisation. This is why they are sold cheap.
Although you can make profits even with penny stocks, the risk involved with them is very high. Therefore, it is considered prudent not to buy a large number of them just because they are being sold cheap.
6. Demat Account
As an investor, you must know that the Demat Account is important for investment in the stock market. But what you may not know about is that you can use your Demat Account for various other purposes:
- To avail a loan by placing your securities in the Demat Account as collateral.
- The safety of your shares is increased as they exist in electronic form rather than the physical one where they are prone to get damaged or lost.
- You can freeze your Demat Account to make sure that no unnecessary activities are taking place in your account.
- You can use the Demat Account to monitor the performance of your shares in the stock market.
7. Knowing Your Shares
The stock market for beginners should not just be a place for impetuous investment. It is important to first know where you are investing and what you are buying. The type of shares is one such thing to keep in mind while investing. There are generally two types of shares: equity shares and preference shares.
Equity shares provide you with dividends and voting rights but are equally risky. Preference shares, on the other hand, give you the benefit of receiving dividends before the equity shareholders. Also, preference shareholders are the first to be paid when the company is going to liquidate.
By knowing these things, you can easily make a name for yourself as a successful young investor in the stock market.