Things to consider before investing in stocks
Investment options are no longer limited to bank deposits. The younger generation has become more interested in investing in methods that will provide them with higher returns in a shorter period of time. Hence, the traction for investing in stocks gained momentum. Having said that, investing in stocks is not child’s play. A beginner who wants to start investing in stocks needs to learn more about it and make sure that they are making the right investment decisions at all times.
In this article, we attempt to provide insight into some tips that will help gain a better understanding of how to begin investing in stocks.
1. Time Horizon
Stocks are usually fixed on a time period, and it is necessary to get your head around that as it might be an important point to consider before investing. The amount you are willing to invest and the risk you are willing to take will be determining factors in the time horizon you choose to invest in.
- Short-term investments: Short-term investments are investments that are down for investment for less than a year. The best stock to invest in short-term investments is blue-chip stocks as it gives good returns. Blue chip companies have a good track record and will have fewer risks involved.
- Medium-term investments: These investments are for a time period from one to 10 years. Emerging investments are the best and will have moderate amounts of risk.
- Long-term investments: Long-term investments are investments with a time horizon of more than 10 years. These investments are most preferred as there is enough and more time to recover if it goes wrong and still be able to put in a significant amount of return.
2. Investment Strategy
It is necessary for beginners to have an understanding of the strategies that they need to adapt in order to get the most out of the investments they are making. To get the best returns, you should learn how to create your investment style and then put that style’s strategy into practice.
There are three strategies that will help with effective investing:
- Value Investing: In this investment strategy, people are recommended to invest in undervalued stocks compared to other performing stocks in the market. There have been instances where this has worked in the past and has generated a good amount of returns for investors.
- Growth Investing: This investment strategy is basically where the investor tracks crucially the market trends and invests in stocks that give the best results concerning revenue and earnings. Growth investors look up these investments and cash on the upward trends happening after careful analysis.
- Income Investing: Income investing is where the investment strategy is to invest in stocks that are working well in the market and are showcasing good returns. The dividends received on these investments are again reinvested into the potential market. It is a very common investing style seen in stock trading in UAE.
3. Understanding the lingo
Stock trading in UAE and the investment market, in general, come with a lot of lingoes that is specifically used in the market. Not knowing these technical words and their meaning will have an effect on your investment plans and the returns you are trying to make. So, it will be a good choice to take some beginner classes before investing in stock to get the most out of it.
Additionally, make an effort to comprehend the fundamentals, including well-liked stock selection techniques and a better understanding of market orders, limit orders, stop market orders, stop limit orders, trailing stop loss orders, and other commonly used types. It’s also crucial for investors to comprehend how to assess economic determinants.
4. Stock performance comparison
Using tools like Google Finance and Stockedge can bring a different perspective to understanding how to invest in share trading in UAE. These techniques help compare the different runners in the stock market and help understand how they have been working in the market. These comparisons will help create a deeper understanding and will encourage sane and wise investing.
5. Invest surplus money
Newbies in the stock market are fiercely fascinated by the idea that the returns that they can get in a short period of time or the number of earnings that they can get through investing in stocks is much larger than any other investment option. It is this poor analysis that has cost them a lot of money and rendered them useless even before they started. The stock market is a very risky place to put money, so you shouldn’t put money into it that you can’t afford to lose. The first step to making sure that you aren’t compromising your finances is to look into these factors before share trading in Dubai, such as:
- Risk tolerance and your age.
- Financial strength
- Retirement Goal
So, make sure to invest only funds that are in surplus and that even if losses occur it will not affect your financial standing.
7. Avoid herd mentality
It is one of the most common reasons for losses when investing in stocks as a beginner. Investments in stocks are usually started on the recommendations of people who started investing early. These investors usually crowd the newbie investors with lots of unsolicited opinions, and these opinions may or may not have a chance to work. Beginner investors have to keep in mind that they have to learn about investing in stocks and stock trading in UAE before going ahead and making investment decisions. Know about the business and analyze the market carefully before investing in companies.
When planning to start investing in stocks, it will be a good idea to not focus your money on just one type of investment or stock. Diversify where you invest in terms of instruments and industries. This strategy will help you gain money even if a certain market goes down. However, it is preferable to limit diversification to some extent, and it should not exceed a certain level when it comes to over-diversification.
There are many other points as well that will help you gain clarity of understanding when it comes to investing in stocks. Learning about these tips is possible only if you take the necessary classes to understand them and also start trading using a demo account. Getting yourself the services of a depository participant like Seven Capitals which has a good research team will also help you invest diligently.