10 golden rules for making investment in stock market (2024)

“Successful investment is about managing risk and not avoiding it,” this is perfectly said by the father of value investing- Benjamin Graham. His words are very useful and hold true while investing one’s hard earned money. When it comes to investment, people really get confused about where to invest, where they can find minimal risk and gain maximum profit. Here are 10 golden rules to profitable investment in stock markets. These simple yet imperative rules can help you to stay on the top while investing in stocks, so always follow them and get best returns from your investments.

1. Proper planning

The financial insights of all the top investment advisors in India suggest that when one is checking out the options to invest the money in, they should first gain clarity with what they are investing for. Be it the house loan needs, or to meet the future expenses once clear with the investment objectives, one can better make choice amongst other crucial factors like that of target return, time horizon and risk-appetite. Considering all the factors, it is the asset class that best suits the aims and objectives of small investors. Training is an essential part for an athlete to win a race because it helps him to analyze his worth before standing in the ground. Same goes with the investor, he must figure out his net worth for a successful financial plan and the best way to do so is to draw a table between the assets and liabilities you have. Note down the factors that can affect your ability to take the risk, some of the factors can be your age, income, liabilities, and the industry to whom you belong.

2.Gain Market Knowledge

Knowledge is the key to better returns. Most of the people invest in the market without having a proper knowledge. Investment doesn’t occur in a click; instead, it is a part of a strategically planned and disciplined approach. No matter how big or small amount one is pitching in stocks, to gain good returns, the prime need is to gain a clear understanding of the stocks one is interesting to invest. Always make enough research and stick to only those plans on which you have clear understanding and clarity.

3 .Go Futuristic

Review your portfolio to mete out future needs such as marriage, birth of a child, salary hike, windfall, loans and black swan situations (sudden movement in the stock market). It takes hours of hard work, patience, and dedication to earn a good sum of money but even a slight mistake can ruin your finances. So, it is better to take on every investment as a decision that can make or break all the lifetime finances. Instead of stashing away saved money in drawers it’s better to investmoney in healthy investment plans that bring good results in future.

4. Don’t put all eggs in one basket

Believe in diversification, i.e., don’t putall the funds in one plan. If one has funds, one shouldn’t just investall of them in a single plan instead they need to study all diverse sectors available with them and then invest in some percentage of their funds in the varied options available as per their choice. A diversified portfolio cuts down the risks of complete loss and ensures some of the other things trickling into your savings pot.

5. Hype is not hike

The next big advice of financial/investment advisors in India about the trading is; more than the truth it is the hype that circulates and traps most of the novice investors in its vicious circle. Instead of trusting and falling dangerously, it’s better for the investors to do their research and always stay alert to the mishap and market chaos. Even the seasoned investment market experts suggest that to get the best of long-term returns, investors need to sell what all are talking about and try options that were previously ignored but showing silver lining in future market.

6. Be a disciplined investor

Whatever be your profession it is the discipline and dedication that tackle life smoothly. The volatility in the investment markets has even resulted in a great slowdown of investors despite having the great run scores. However, those working with the systematic approach of pitching in money held the investments right and earned lucrative returns with the passage of time. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping the long-term scenario in mind.

7. Live with realistic expectations

Hoping for the best from investments is not wrong, but what’s wrong is expectations based on unrealistic assumptions. Several stock market studies reveal that earning more than 12 percent return is an alarming reminder that there are losses lined up that would be much heftier than what the investors have earned. Therefore, while stepping into the investment market, one shouldn’t expect the same kind of returns every time.

8. Invest only the surplus

When starting with the investments, one should investthe surplus while keepingthe necessary backup safe and steady. It is not necessary that if you aren’t losing it now, you won’t be losing it in the future too. Hence, its advised to pitch the surplus so that even if the investments go wrong, one has a backup to keep their life steady and moving otherwise, bankruptcy also comes knocking at the worst of situations. Instead of losses, profits can occur too, so take risks but with care.

9. Move with integrity

The stock market is the place with the least scope for emotions, especially of fear and greed. There have been many instances where quite a lot of investors faced hefty losses only due to their inability to control these emotions. True is the fact that the lure of making quick money can’t be resisted at a time when one starts hearing fabulous stories of investors. This opens up the space for speculations which further pushes the investors in buying unknown equities without thinking twice and falling out badly the moment the market changes its mood. So, it’s advised to not get influenced with rumours and speculations and do extensive research before making any investment decision.

10. Monitor to control

The whole world is a global village; any important event that takes place in any part of the world heavily affects the financial markets of every nation. Hence, it’s important to stay updated with all sorts of global events and constantly monitor the portfolio and keep it balanced with desired and timely changes. If one isn’t sound with the skills required to review the portfolio, then it’s better to hire a good financial advisor instead of waiting and repenting over it later on.

Disclaimer: Rachit Chawla, CEO, Finway, is a guest contributor. Views expressed above are the author's personal views.