What is Risk Profiling? How to find your Own Risk Profile
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Knowing your risk profile is one of the very important step before making an investment. Risk will always be on your plate when you’re investing, but do you know How to find your own risk profile? Refer our video to learn detailed information about your Risk Profiling
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Now that this year is approaching the end, it is time to take a count of what was to be done, what is done, and what needs to be done if we wish to stay ahead. This applies to your investment portfolio same way as in case of your life goals. So, stay tuned as we present to you most important pointers to raise equity investment in coming year 2021.
Past is the teacher as far as financial markets go. If you wish to understand the impact of the investment decisions (consider stocks, mutual funds etc.), then it is imperative that you look at your investment portfolio. This is an important step before diving into next year’s investment decisions, as it will give an adjustment chance if you need one.
For e.g. if you have been following your portfolio goals considering your kid’s higher education as mid- long term goal for all these years, and the next year is going to be the first year of college for your little one, then what? You will need to rearrange your portfolio to make way for liquid funds for admission and tuition fees, if your child opts for an expensive course.
You are not sheep
Yes, following the herd blindly and imitating every other move of any “favoured” group is something sheep do! So, avoid basing your investment decisions and ideology on any of your friend, relative or colleagues. Even if they are making profits based on any tip given by any broker or trader or any other so called insider source.
It may happen that bull market trend may turn into bear rally, once these sources achieve profit. This may cause a big setback if you have purchased the stock which is not so fundamentally strong in bull market and wait to see if it rises even higher. Ultimately, you might face the loss which may be huge enough to hamper the investment portfolio.
Warren Buffet has introduced the concept of value investing or value stocks, which refers to investing pattern where the investor seeks to invest in undervalued but which possess the high growth potential in coming years. Such stocks must be researched and can be traced after deep technical and fundamental analysis. In brief, invest in a company and not in the stocks, which will make you seek for sound financial fundamentals and not fall for any hype for high-low or stop loss.
It also comes along in another way. You should always understand the business of the company in which you are going to invest. Think of the stocks as businesses and not as merely stocks. By this way, you will be inclined towards investing in fundamentally sound and potentially progressive but undervalued stocks in the market. Even you can hire financial planner for managing your financial portfolio.
Timing the market is a myth
If any investor boasts of timing the market, be it with technical analysis or just with gut instinct, it is just not true. This is because stock market is volatile and contains short term fluctuations. Ideally, stock market starts bull trend once investors start buying irrespective of any reason. It might be based on a tip or just looking at bullish trends. However, seldom people will know that such bullish trends may turn into bearish market anytime and again start selling the stocks at loss with a fear of incurring losses.
It is better to hold the stocks for a while since stock market corrects itself many a times, meaning that market reverses its trends and the stock prices may become lucrative if you hold them for a while. Speculation and day trading are hence, to be avoided if you are doing it based on certain tip or insider quotes. You may lose your money while squaring it off at the end of the day by selling it at loss, just because you may not have sufficient funds for clearing off the liability.
We have always heard of the saying, “Do not keep all eggs in one basket”. This applies to your investment portfolio. Those investors who had invested their hard-earned money in one sector only, had to bear exorbitant losses. Only if they could diversify and invest in other sector and industries also.
Study and understand the various sectors which possess potential to grow and are trading at discount right now. Apportioning the portfolio investments to such weighted investing will increase the returns and reduce the risk magnitude.
Expecting more and more
Even if you have invested in value stocks and have held it for long enough, earning more than 12-15% would be just superficial and may happen rarely. It is just not right to have unrealistic expectations from equity markets, since these markets have their reversal trends. There may be some Mid or small cap stocks which have rallied almost 150% in one year, however, it will be imperative to invest in such stocks only after thorough understanding and analysis to avoid huge losses as they are already trading at premium now.
Take out your Piggy bank
Since the stock market can’t be timed and can’t be beaten with any strategy or idea, it is best to invest only surplus funds. Market has mind of its own and hence you really can’t predict the market ups and downs, so it is best to invest the money which is left after all appropriations for necessities and other secure investments. Needless to say, that this investment may also rise up in favorable conditions.
Discipline pays you
Emotion clad investing is another example of panic investing which may further fuel the bull market and may signal bear market coming through. It is always seen that the investors just see the momentum of the stocks and dive into them if they are rising, where they fail to understand that stock prices may reverse and all calculations may go wrong.
Disciplined and systematic investing always discourages such panic investing and thus you stay away from bouts of enthusiasm, and encourages investing in right shares and for longer time.
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Where interest rates are heading?
Even if you don’t understand the whole dynamics of interest and stock market, be sure to check the interrelationship of the two. Any change in interest rates may bring down the stock markets, especially banking stocks.. Keep a look on RBI rate cuts, which may result in bout of panic in markets. However, you should be calm and not dive into such rush investing as you follow systematic investing approach.
Long term investing always helps
Last but not the least, long term time-frame generally results in value appreciation and reduces the risks of loss due to panic trading. Even where, the stocks are under performing or are undervalued, you should hold them long enough to receive desirable price for them. However, there is a condition that these stocks are fundamentally sound and you do not trade on any tip.
So these were the Top 10 tips to raise investment in equity markets. It is always recommended that you get in touch with a financial advisor to consult before making investing decisions. Investing in the stock market ensures long term wealth creation.
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