Risk. Before even succinctly thinking about what really Market risk is , we easily take our steps Back the moment this word pops up. However we must realize the fact that risk is inseparable From reward.
One only confronts risk when they step out of their comfort zone , expanding their limits. Trust me if you are thinking about investing in financial markets then you have already started defying your limits. Now let's understand all the measures you need to work upon beforehand making an investment.
UNDERSTAND RISK REWARD RATIO- One major problem which contributes to the lower statistics of investment in financial markets by Indian demographic is the fact Indians like to play it safe. Due to a large ratio of Middle class in India people are hesitant to invest something they don't fully understand. Therefore addressing the root of this problem we must clear our concepts. Come in terms with the truth of earning double returns from stock market. The more reward or return one gets is directly proportional to the risk he's being vulnerable too. FOR EVERY INDIVIDUAL THAT MADE IT BIG. THERE WERE DOZENS THAT FAILED. So be practical in your choices.
FOCUS ON DIVERSIFICATION OF PORTFOLIO- You cannot possibly avoid market fluctuations all your life especially once you get into it but you can obviously be well armed in case you face any contingency. A smart investor never puts all his money in one company. He invests small portions of this savings in different financial tools. So keep in check the phrase - " NEVER PUT ALL YOUR EGGS IN ONE BASKET" cause if the basket falls you'll be all broke. In case you don't have the time and resources to look into various sorts of shares and study the market forces and can't possibly afford an expert for that matter you can totally go with a mutual fund.
Mutual fund offers you the opportunity to diversify your portfolio and minimize company specific risk. Owning a variety of stocks like - Domestic, Foreign, Small, Large blesses you with more safe returns. After all SUCCESS COMES FROM A WELL DIVERSIFIED PORTFOLIO.
LASTLY STOP HAVING UNREALISTIC EXPECTATIONS- How often do you give your money to a bank and think of getting double the return within one year ? Never. I guess. Cause that's how it is. Banks don't provide you with a high return within a short span of time because there's absolutely no risk when investing your money in a savings account. Now understand your mind and desires, when someone asks you about investing in financial markets you immediately get two thoughts-
1) A panic stricken thought which tells you "oh you'll loose all your opulence in that stuff"
2) A happy successful approach " ohh that's a quick way to get rich". Please understand that there's absolutely no way of getting rich quickly, it's just a matter of chance when somebody gets inherited rich or luckily rich. Also this doesn't happens with most people on an average. So be real with your investment decisions and thoughts associated with it. One can only get rich by chance once ,twice , thrice . It doesn't works everytime
. Warren buffet earns only 19% of his investment p.a. Therefore acknowledge the reality that if you want to play big you will have to face the risk of loosing it all but if you want to play long then playing safe becomes vital.
These were some general things to keep in your mind when stepping in a financial market.
You can never know it all but atleast you can know some and then the rest you can learn all along your journey.
· Keep eye on your Risk and Reward ratio. Higher risk , higher returns. Lower risks lower returns.
· Take assured returns by investing safe.
· Safe investment is a lucid task. Just diversify your portfolio.
· Don't go for penny stocks. They may get you lucky but they're not reliable. They have no Fundamental backing to them
· Instead go for Blue chip shares. They're safe as they move slow and offer greater return if seen from a long term perspective. Also it comprises of good share holding pattern.
Just these basic steps should be followed and you can be player in these markets for a long run.