The stock market is a lucrative platform for beginners to start their investment journey. It offers ample opportunity for new investors to grow their wealth while learning about the stock market. They can invest in companies that have been household names i.e. extensive knowledge is not a prerequisite to start investing.
There are several types of stocks in the market, like upcoming IPOs and stocks already in the trade, so a newbie can always find something as per his investing comfort.
However, stock market investing can be confusing for new investors, and questions such as what types of stocks one should invest in can be mind-boggling.
What Type Of Stocks Should A Beginner Buy?
95% of new investors in the stock market lose their money in the initial 90 days. The primary reason behind this is the poor selection of stocks. With more than 4500+ stocks listed on the stock market, a new investor can easily get overwhelmed when selecting stocks. The market is filled with two types of stocks; wealth destructors and wealth compounders.
Wealth Destructors: These are stocks that appear to be lucrative on the surface, but are worthless in reality. Stock market beginners get attracted to the shiny future projections displayed by such stocks. If the investor inspects these stocks closely, he will realize that they are burdened with debt and suffer from poor quality management. Beginners perceive these stocks as the best buys, but they are wealth destructors in reality and may have destroyed the investors’ wealth by up to even 100%.
Wealth Compounders: These are stocks with strong balance sheets, marginal debt, strong quality management, and honest future growth predictions. The public presence of such stocks may not be illustrious, but they have strong fundamentals and can help investors create infinite wealth.
How to Identity The Best Stocks In the Stock Market?
There are a few things you should keep in mind when you start investing in the Indian stock market. You should know these things to avoid failures when looking for answers on how to invest in the Indian stock market and how to invest in US stocks from India.
- A stock market beginner should define himself before investing in stocks. He should identify if he is an investor investing in the market for the long term or a speculator investing in the market for the short term. This way, he can manage his expectations and risks better.
- The time horizon for which a beginner can stay invested in the market can help him select the most suitable stocks. An investor who can stay invested for less than five years can consider investing in large-cap funds. Investors with a time horizon of ten years or more can invest in mid-cap and small-cap funds.
- An investor should understand that the stock market offers no guarantee on the invested funds. Therefore, a stock market beginner should analyse his risk appetite and invest accordingly. Investors with a low-risk appetite can give more weightage to large-cap funds even if their time horizon is more than five years. Even if a stock looks lucrative, an investor should not invest in it if it does not match his risk-taking ability.
- A new stock market investor should diversify his portfolio and not stick to only his favorite stock. A calculated allocation of funds between equity, debt, and gold can help an investor lower the risk of his investment.
- Indulging in a herd mentality when investing in the stock market can be hazardous. Investing in stock without researching it because someone advised it or claimed to make money from it can give huge losses. Stock market investment should never be an emotional decision, and you should select stocks based on knowledge and research and not because others are buying them.
The Final Word
A new investor in the stock market should learn on the go. There are multiple resources available to an investor to educate himself on the basics of stock market investing. In the beginning, an investor can stick to stocks that have a history of good dividends, are easy to research, and have strong financials. The stock market works like a barometer for a nation’s economy. The major news related to the economy and factors that affect it can have a significant impact on the indices.
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