Investing has its own risks. For a beginner, one might look at the stock markets in search of better returns. Going for 100% equity stocks would be okay. However, you can reduce your risk by investing in a disciplined manner.
What is the Disciplined Way of Investing?
This means that you have planned in what stocks you would invest in, based on your research. This could be done by looking heavily through fundamentals or just slight research by gathering some news/information about the company. Once you invest, you have to be patient. Usually, it happens that on the second day of investment, you might see loss on your portfolio. This is totally fine. All you need is patience while your money grows back and then generates profit for you.
How should I pick the right companies to invest?
Based on my personal experience, I would recommend my readers to follow a 50-30-20 rule for their portfolio. This means, you portfolio should consists of 50% Large Cap Stocks, 30% Mid Cap Stocks and 20% Small Cap stocks.
Reason for diversification?
Every portfolio must be diversified to reduce risks. Large Cap companies are those companies which have market capitalisation above ₹20,000 crore. These companies have low market risk and they tend to grow in future. They are capable of reducing your portfolio risk. Mid Cap companies are companies having market capitalisation above ₹5,000 crore but less then ₹20,000 crore. These stocks are moderately risky. Small Cap companies are those companies whose Market Capitalisation is less than ₹5,000 Crore. This is the highly-risky stock class. When they go up, they outperform the markets but when they come down, they come down drastically.
The 50-30-20 ratio is well defined for any beginer. Once invested and after getting some experience, this ratio can be slightly drifted to riskier asset class in search for higher returns.
Time Period for Investing
For investing, there is no definite time period specified. You can continue your investment for decades. The more time you be invested, the higher returns you will get afterwards. But for short term profit booking, you can be invested for 6-12 months and get reasonable returns on your portfolio.
Thank You For Reading!
Finance graduate with a strong desire to understand the complexities of financial markets. I make financial judgments for my investments based on the information I gained during my academic education. I write articles about financial literacy for finnute.in in order to promote financial literacy among the general public.