The stock market is known for its volatile nature, and events like the Russia-Ukraine war and COVID-19 pandemic can shake the market even more than usual. It is but human to panic and feel an urge to act quickly on your trades, especially on the selling out. However, it is important to not panic in such situations because it is very likely that your investment will become the next big thing in the future. This article attempts to help you stay calm and become aware of what to expect from your future ventures. Keep reading to know more!
Things To Consider Before Investing in the Stock Market
A huge breakthrough in your stock market investing is inevitable if you know when and where to invest. Here are a few things to keep in mind before investing in the stock market:
- Set Investment Goals: Before trying to grasp the Indian stock market, your primary focus should be on setting clear financial goals along with the tenure for which you are willing to play the game. A wise suggestion is to stay put in the market for a longer period for better returns. But, again, it should be your call and your own investment goals to plan.
- Be Cautious About the Risks: Of course, there would be risks in something so similar to gambling. You are not asked to be over-optimistic about your investment. Instead, you can try and gauge your risk appetite before jumping into the investment game.
- Explore the Diversity: Keeping a diverse portfolio is imperative to escape substantial risks in market volatility. If some of your stocks do not perform well, other stocks in the portfolio can offset that. Again, a portfolio that is too diverse can hinder the overall growth of the profit margin.
- Invest within Personal Limits: One thing to remember while investing is that you never invest an amount that you cannot afford. Taking a loan or borrowing money to invest in is a similar mistake people tend to make in the stock market. Invest only the money you can afford to risk losing.
What Happens If You Panic As A Stock Market Investor?
Stock market investors are no less human, with their natural tendency to panic at times when the stock market crashes. In most cases, new and inexperienced investors panic-sell or panic-buy their stocks as a knee-jerk reaction to counter their diminishing portfolio. If you panic-sell, you might lose a golden investment opportunity in the future. And, if you panic-buy, you might end up with something which was just short-lived and not adding value to your portfolio. Therefore, it is best to avoid panicking as a stock market investor.
What Should You Ideally Do When the Stock Market Shakes Unexpectedly?
Instead of panicking, the following are a few strategies you can adopt to keep your calm during volatile markets:
- Do Not Buy in Panic to Cover Losses: The basic human instinct will make you want to buy new stocks as soon as you face deep losses following a market dump. Avoid falling into such traps. Invest in only those stocks which are capable of boosting your portfolio in the future, essentially the blue-chip and large caps.
- Gauge Your Risk Tolerance: The stock market can crash anytime. It would be best to not think about new strategies when your portfolio is diminishing. You should plan the strategic part at the beginning of your investment. Different factors determining your risk-bearing capacities include your active trading time zone, dependence on the returns and basic emotional reaction to such an unsettling event.
- Limit Your Losses: A feature known as the “stop-loss” has been created to help investors limit their losses when the market is dipping. Experienced stock market investors are well aware of the use of stop-losses. They sell out a stock when it falls beyond your loss-bearing threshold, thus saving you from huge, unforeseen losses.
You can also limit your risks by investing in stock futures. Stock futures investing is a better method of hedging risks during volatility. They have to be locked at a specific price and allowed to explore a diversified investment and are not significantly affected by the market swings.
- Long-Term Investment: While investing in the stock market, you should always aim for long-term returns. In short-term investments, the market toggles dominate over the profits made out of a diverse portfolio. Remember, losses incurred today can be overcome by the returns in the long run, as the share market is a cyclic process. Crashes and dumps are devastating but temporary. You can always overcome your losses if you hold your patience and not panic.
Stock market investing can be a rollercoaster ride at times and can cause you to panic. To help make informed decisions, you can consult with an expert or enhance your knowledge with Sharekhan’s elite finance literacy courses. These courses give you valuable insights into the right time and stocks to invest in. Always remember to stay cautious and never panic during investments. Instead, keep your strategies upfront and active with proper guidance through our experts.