“I want to compound my wealth like the rich by investing in the stock markets”
“How do I multiply my money strategically?”
“What is the best strategy to increase my net worth using Stock Market.”
These questions might be running through your mind, right? If so, then this must-read blog will help you in creating wealth using the stock markets.
Increasing your net worth by using stock markets is an excellent way to realize your financial dream reality. But, the markets should never be considered something as a get-rich-quick scheme. If done wrong, people can lose a portion or complete wealth rather than increase it.
1. Strong Investing Strategy.
An investment strategy is a set of rules with which one invests. The decision to select an investment strategy is based on the financial goals of the investor. It also:
- Acts like a ladder to financial success.
- Keeps people away from making impulsive decisions.
- Keeps their fear and emotions at bay.
Fundamental Analysis Of Stocks concentrates various metrics such as price-sales ratio, debt-equity ratio, free cash flow, PEG ratio, price-to-earnings ratio, etc. into one analysis. Measuring all these ratios assists in finding out a stock’s intrinsic value. This further lets us know whether a stock is undervalued or overvalued. If a stock is undervalued, it is a wise pick for the long term.
Technical Analysis of stocks tries to figure out a stock’s future price movement by evaluating its past patterns and trends. Based on a strong proven belief that price trends have a tendency to repeat themselves, Stock Technical Analysis looks at simple moving averages, past performance, momentum indicators, support and resistance levels, trendlines, chart patterns, etc. to find out the probable move. This is another style of making money and is adopted by most day and swing traders to make short-term profits. A combination of Fundamental Analysis Of Stocks and Technical Analysis Of Stocks makes a strategy suited and strong for positional trades.
- Having a list of all the needed valuation metrics based on the investment goals and filtered stocks helps in making the right investments.
- Choosing the right investment strategy according to a person’s persona is the best way of formulating a strategy.
- GSF’s Online Stock Market Course In Gurgaon not only trains their students in Stock Market Courses but also guides them in building their own personalized strategies.
2. Holding Quality Stocks Is The Power of A Great Investment
Let’s take an example. Reliance Industries, owned by Mukesh Ambani, had its initial public offering in November 1977 with a price of Rs.10/- per share. Instead of buying a costly car for Rs.10,000/- in 1977, if one would have invested the same money into Reliance IPO at that time, a staggering 272400% would have been the return percentage. In terms of numbers, Rs.10,000/- would have now become Rs.2,72,40,000/- (2.7 crores approx) according to today’s share price of Rs.2725/-
The power of a single good investment can wipe out the disasters and mistakes of other investments.
Now, instead of investing Rs.10,000 into a single stock (i.e., Reliance), let us assume that the investment was split into 10 different stocks with Rs.1000/- allocation to each, one being Reliance.
Let us say, that the portfolio created was the worst, and 9 out of 10 stocks literally went bankrupt. So, this way, Rs.9000/- is lost (which wiped off 90% of your investment portfolio). But, thanks to Reliance stock that was bought in 1977, which still made Rs. 27,25,000/- This is the money without including cash dividends.
Lesson Learnt: Holding is the key to investments. Many people wouldn’t have held their Reliance Industries stock for 4 decades. After getting double or triple returns, they would have bailed out, thus missing out on the stupendous rally. Hence, sitting tight on your investments by having an eye on the business is the first key to wealth creation.
3. Make SIPs Consistently
SIP is termed a Systematic Investment Plan. In a SIP, people invest a fixed amount either monthly, weekly, or rather periodically. This is also called dollar-cost averaging. The most common SIP is monthly.
Irrespective of the fact whether markets are going up or down, consistently adding money to your investment portfolio either through individual stocks, mutual funds, or ETFs should never be stopped. The reason behind this is the consistent uptrend of markets over the long run. This strategy of periodic investments regardless of the market conditions is known as dollar-cost averaging. The main advantage of dollar-cost averaging is to reduce the impact of volatility on an overall portfolio.
Automating payments from a bank to the brokerage account ensures a hassle-free SIP payment. SIPs reduce the overall stress caused due to market conditions.
- During a market crash or a downturn, investing more money through SIP can reduce the overall purchase price.
- Similarly, during a peak market, drastically reducing the SIP amount can yield high returns on your investment portfolio.
Fun Fact: The more capital you invest, the sooner you invest, and the longer you stay invested, the richer you become.
4. Investment Diversification
Behavioral finance, a study of investor behavior is a major part of most Stock Market Courses. It discusses how people tend to make irrational mistakes and repeat them.
According to many successful investors, including the legendary Warren Buffet, diversifying investments through low-cost index funds, small-cap funds, etc. pays off in long term instead of chasing a hot individual stock. This way, the fall or rise of a company isn’t apparent when looking at the index as a whole and keeps fear and emotions at bay.
Tip: ISMA course, one of the Best Online Stock Market Courses In Gurgaon, has Behavioral Finance as a major part of its Stock Market Course Curriculum.
5. Rebalance The Portfolio
One should always rebalance a stock portfolio once every year. Cut down the stake in companies that are consistently losing with fundamentals worsening. Reinvest the same amount by increasing the stake in companies with growing profits. This ensures that a portfolio is healthy and is ready to run for wealth creation.
“After every pain, there is a gain.” This aptly applies even to Stock Markets if used correctly. Long-term investing is a bumpy road, with loads of pain. Many stock owners sell their portfolios after seeing their brokerage accounts decline. They underestimate the power of compounding and patience and miss out on the rise after a fall. But those who stick to their strategy, prevail in the markets.