Investing In Stocks
Ideally, the earlier one starts investing in stocks the better it is. But it is very important to understand other factors first related to investing in stocks. Many people think that one earns multi bagger returns in stocks, and having that kind of thinking can be very risky. There are lot of risk factors involved in stock investments.
It is more important to understand the business model of that company, its performance cycles and trends and other such things. But one, generally, only looks at the share price of the company and what price they should enter or exit the market. This approach is completely wrong.
How One Should Approach Investing in Stocks?
So, how should one approach investing in stocks? This exactly what will be discussed here. For anyone who invests in stocks there are 2 Objective behind it, either to create wealth or to achieve financial goals.
1. After Completing Financial Planning
- Thus, everyone should always first look into and complete the financial planning process. Through this process one will get the exact details of their outflows, expenses, post-tax income, surplus money left, etc.
- Financial Planning Process is mainly stressed on Cash Flow Analysis.
- The most important that will be done in this process is Goal Planning. Here, one should at least cover their needs. Needs may include your first home, retirement, children education and children marriage requirements.
- Once, one has completed their financial planning, then they can think to invest in stock markets.
2. If Surplus Money is Left
The amount left after deducting all the expenses from the post-tax income can be termed as surplus money. Surplus money left should first be utilized addressing these needs. If any surplus is left after addressing these needs, that can be used for stock investments.
3. No Right Age
- There is no fixed age to start investing in stocks. But one should particularly complete their financial planning first by the age of 26-27. And from this age they can start creating a base for their needs or goals till the age of 32-33.
- Thus, one should invest in stocks when they have created a strong base first, even if they do this at an early age.
4. After Understanding the Stock Market
- If one wants to invest in stock markets, then one should first study and gain knowledge about stock markets and how they work, understand the businesses of the company they want to invest in.
- When a person starts understanding these things it will be very helpful in decision making to choose stock investments. Therefore, one should invest in stocks when they start understanding them and good and healthy information about it.