10 Golden rules to boost returns from stock market investments
If you talk to some investors, they would say they are making good returns in stock market investments. Some say they burnt their fingers and stopped stock market investment. While there have been no foolproof rules on how to boost returns from stock markets, there are a few golden rules which one can follow and get good returns in the long run.
10 Golden rules to boost returns from stock market investments
1) Understand before you invest
Many of us would be in a hurry to invest and later blame the stock market that they incurred losses. Till 6 months back, I have seen that investors have seen good returns from Technology stocks / Funds and any new investors still felt that they can make 50%+ returns in the short term and started pumping more money. Now technology stocks are not doing good and in a down trend. I would have got more than 500 messages on this blog indicating they were new investors and they just invested without understanding them. You should first study various sectors, which are growing, which are declining, the risk appetite involved in such stocks or funds. If you are a new investor, spend 3 to 6 months just to understand on how they work before you invest. You should know stock market investments are high risk investments.
2) Invest in good options where you pay less
Invest in options where you need to pay less fees. Understand various fees / charges which you need to pay while investing in the stock market. It could be brokerage fees for stocks purchased, fees charged by mutual funds brokers directly from mutual fund companies (trial fees), transaction charges etc. Try to avoid or reduce wherever possible. Open a demat account / mutual fund account which charge less transaction charges. Invest in direct plan of mutual funds where you can avoid trial fees. This could help you to get an additional 1 % to 2% returns.
3) Avoid market timings
Don’t think you are too smart and investing at the right time and would exit at the right time. No one can predict market timings when it would go up or down. Many investors burnt fingers thinking they can exit at the right time. But when the market falls and keep falling, they sell with huge losses.
4) Don’t invest in too many stocks or mutual funds
I have seen one reader commented on this blog indicating that he invested in 25 mutual funds and 50 different stocks. I got surprised that he spends several hours in a week to track how they are being performed. Invest 5 to 8 mutual fund schemes and less than 10 stocks for investments.
5) Rumors are good to hear, bad to invest
Don’t invest based on rumors. Though you may earn money in some cases, there are a majority of chances that you would lose. These cheap tricks are created by some of the stock brokers who want to earn money in the short term. They know that majority of investors has now become clever and keep targeting new comers to stock market investments.
6) Implement disciplined investment approach
You cannot time the market, but disciplined investment approach in stock market would help you to come out from stock market fluctuations. Markets are booming now. If you ask who has earned more money, it could be short term investors and long term investors. However, what happens if the market falls now? Short term investors would lose money, but long term investors would have still made money as they have been investing for long term and their average cost of investing in a stock or a mutual fund scheme is less. Use System Equity Plan (SEP) in stocks and Systematic Investment Plan (SIP) in mutual funds to invest every month instead of lumpsum.
7) Avoid Emotions while investing
Stock market is at peak now. Many of us are making money. However, don’t be too emotional and start investing in unknown companies or not well researched mutual fund schemes. Don’t judge with returns in last 1 year to make investment decisions. Soon you start incurring losses in such stocks or funds.
8) Believe in realistic returns
When I write articles I indicate that one can expect 13% to 15% annualized returns in the long run in top stocks or good mutual fund schemes. I got several mails saying investors are making 30% annualized returns and in last 1 year on some stocks and mutual funds gave more than 60% returns and why I still indicate 13% to 15% only? Let us not forget stock market crash in 2000 (dotcom bust) and 2007 (financial meltdown). If you invest in next 10 to 15 years, consider all these points. If you are making good money beyond this, well, you can do party.
9) Invest your surplus money
Last week there was a comment from reader Ms. Archana, indicating that she wants to invest in stock market for 1 year and she has some commitment to spend such money after that. She got disappointed when I told that we should invest in stock market for long term. We try to invest short term money. When we need money, markets are not in our favor and we sell such stocks or mutual funds with loss or less returns. If you invest your surplus money which you do not need for 10 to 15 years, you don’t need to book losses. You would wait and exit at the appropriate time when markets are giving good returns.
10) Track your investments regularly
When you invest in the stock market, track your investments regularly. If you made a mistake, try to correct it immediately. If you have invested in good quality stocks, but they are not performing for short term reasons, be patient till you enjoy the fruits. I was indicating few months back that technology sector and FMCG sectors should be avoided at this point of time as these sectors are now under performing and one can lose money if you continue. While you may track your stocks or mutual funds, you also should track how well the sectors are expected to perform in coming years. This would help you to boost returns in stock market investments.
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Golden rules to boost returns from stock market investments
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