–Anand Krishnan
Markets have gone up significantly from the beginning of this year. I see many business owners are diversifying their business and are looking for avenues to invest. There was a pre-election rally and now a pre-budget rally.
A lot of small investors have already entered the market or looking at an opportunity to enter the market. Here are 3 rules, though repeated often, can help you in managing your hard-earned money better.
Rule No.1
Always Invest for the long-term: Invest money that you may not require at least for the next one to three years. This will give you the opportunity to clock decent returns over an extended period and will provide you the staying power to deal with the vicissitudes of the market. The longer your ability to stay in the market, the better will be your prospects to improve your returns.
Rule No.2
Invest in fundamentally strong companies: This is a key ingredient for success in stock market. Look for companies that have a strong management, good product portfolio and a performance track record over a 15 to 20 year period. Don’t act on tips and trade on stocks. You will be tempted to use the tips for short-term gains. But at the end of every stock market boom, you will hear stories of people who have lost significant amount of their life savings trading on tips.
While trading is exciting, there are a lot of risks associated with it. Trading is only for people who are glued on to the markets 24 hours a day, 365 days a year. If you have another day job, you are better off putting your hard earned money to work by investing in fundamentally strong companies.
Rule No. 3
Don’t use short-term surplus intended for specific near-term purpose for stock market investments: A few people enter the stock market with an intention of making a quick entry and exit for short term gains. Never buy stocks with money that has been set aside for Immediate Down payment for a house, Impending Medical Treatment, Planned expenses for Children’s education and near-term wedding expenses of near and dear ones.
Any successful investor who has experienced the ups and downs of the market will tell you that anything can happen between the point of entry and time of exit. This situation can lead to huge financial losses, upset short-term and long-term plans resulting in a lot of trauma.
Happy Investing!
(Anand Krishnan is a Chennai-based Chartered Accountant and is reachable on anandkris17@hotmail.com. The views expressed in this article are those of the author and do not represent the views of Channel Times or any of the websites managed or operated by Trivone Digital Services)