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What Questions Should We Ask Ourselves Before Investing In The Stock Market?
July 14, 2021
An investment must meet a specific objective. Before choosing a product, ask yourself the right questions.
What is the objective of my investment?
Financing your children’s studies, going on vacation, replacing a vehicle, passing on assets to your children or grandchildren, building up capital for retirement or precautionary savings: the choice of the financial product in which you invest depends on the nature of your project (especially in terms of duration and risk).
Before investing in the stock market, you must have already built up precautionary savings and set up savings for medium-term projects.
What is my investment horizon?
The product chosen must be in line with your investment horizon (short, medium or long term). Very risky in the short term (less than 3 years), equity investments are less risky over time.
This is why, to get the most out of such an investment, it is recommended to have an investment horizon of at least 10 years. If you think you might need your money beforehand, don’t invest in stocks.
What risk (s) am I prepared to take?
The return potential of a financial investment is always linked to its level of risk. It is therefore necessary to arbitrate between the profitability of a product and the risk incurred. The level of risk you are willing to take is the amount you would eventually be willing to lose.
Only invest in equities if you accept the possibility, in the event of an unfavourable scenario, of losing part of your investment. You must be able to endure such financial loss without seriously disrupting your personal finances. In short, only invest what you can afford to lose. To avoid facing losses, it is best to follow the advice of investment services companies in India.
If you meet this condition, you must also, throughout the life of the investment, get used to seeing its value fluctuate. Indeed, fluctuations of 10 or 15% over a few weeks are not uncommon on the stock market. Stay calm in the face of these variations. Never question your investment in a rush.
How to invest well, what are the rules of prudence to respect?
Even if you meet the conditions to invest in stocks, follow a few principles of prudence.
Diversify your investments
To reduce the risk of your investment, spread it over several geographic areas as well as over several economic sectors (new technologies, pharmaceuticals, insurance companies, etc.).
It is quite easy to obtain such a distribution, even with a small sum of money, by buying units of an index fund. It doesn’t require you to be a specialist in stock market investing. Be sure to invest in multiple funds if necessary.
If you prefer to invest yourself directly in equities, put together a portfolio of at least ten securities spread over several sectors. It requires more knowledge and more follow-up. If you just want to invest your money without studying stock market, we suggest you to consult asset allocation advisory services.
If you have capital, don’t look for the right time to invest it, do it gradually. This will avoid the risk of investing it just before a significant drop in the value of the shares.
Invest the same amount regularly (each month for example) and maintain this effort throughout the duration of your investment. The return on your investment will therefore fluctuate less.