Making the first equity investment is challenging for everyone, especially considering how frightening items like stocks, bonds, and ETFs may be. Equity investment might sound like a complicated strategy, but it is one of the easiest and most common ways to put your money to work.
What is equity investment? Equity investment is the purchase of shares representing partial ownership of a company or organisation. Equity investors buy shares of a corporation with the hope that their value will increase in the future, usually in the form of capital gains or dividends.
If the value of an equity investment increases, the investor would then sell their shares to receive the benefits of investing in equity. This can also be done when the company liquidates its assets and pays all its debts.
You can grow your money in stock market investments if you know the technicalities better. So, after knowing what equity is and before deep diving into the dos and don’ts of investing in the equity market, you need to get the basics right. Here are the top five golden rules to ensure you benefit from investing in equity.
Rule 1: Steer clear of herd mentality in investments
You may tend to give in to the pressure of trading the same way as most other investors. However, steer clear of this herd mentality as it could cause losses. Research stock investment so you can resist the urge to go with the flow. If you need additional guidance on investing your money in the financial markets, speak with a financial counsellor.
Rule 2: Think long-term & do not let emotions like fear and greed cloud your judgement
The ability to think long-term is another essential guideline for equity investment. Many investors emphasise turning a profit quickly in the stock market. The drawback of this approach is that it frequently encourages you to act hastily and carelessly, denying you from benefits of investing in equity.
Your investments will naturally have a chance to increase in value and produce higher returns if you focus on making money in the next five to ten years. The long-term investment strategy will also protect you from making snap judgments in response to market volatility.
Rule 3: Refrain from Speculating
Since the meaning of what is equity refers to company shares, first-time investors may speculate what companies can deliver better benefits by investing in equity in the future. However, this puts your investments in significant danger. Speculation-based recommendations on who or when to buy and/or sell a stock are not supported by facts or research, making them very likely to be just educated guesses.
Rule 4: Diversify your portfolio by spreading your investment
This is undoubtedly one of the most popular pieces of financial advice given to investors. You must diversify your investment portfolio, despite how convenient it may appear to keep just investing in stocks that may have generated gains for you in the past.
To ensure that you get the most benefits from investing in equity with an expanding and current financial portfolio, it is preferable to investigate more choices and make investments in profitable indices.
Rule 5: Make a plan and stick to it
Without a strategy, investing in equity is not a wise move. Especially if your goal is to receive the benefits of investing in equity, it is best to start with a plan that focuses on your short and long-term financial goals.
If you’re a first-time investor, you should focus on investing a set sum each month instead of injecting funds each time you want to buy fresh shares. You can balance your portfolio while staying under your spending limit and making additional low-risk investments.
Following these rules of equity investment will improve your chances of earning higher returns. Sticking to your investment strategy may seem challenging when you begin investing in equity or when you have not received any returns from investing in equity. However, with time, it gets easier to play by the rules and exercise control.