How To Invest In Stocks: 10-Step Method To Profits

How to invest in the stock market Definitive guide

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Looking to invest in the stock market? 

Follow these steps to get started and become a profit-making machine using the stock market. 

If you’ve never entered the stock market and traded shares yet, I can tell you from experience, it’s intimidating at first. 

There are so many things happening at once and you always need to be on your toes, especially if you are directly investing in individual stocks. 

Stocks aren’t like your regular fixed deposit, recurring deposit account, or savings account. 

There the rate of return is fixed, unlike the stock market. If you lack financial knowledge, you can get emotional and lose a lot of money quickly. 

So to avoid this, here is a 10-step Method to approach the stock market.

How To Invest In Stocks: A 10-Step Method To Dominate The Market

1. Set Clear Goals

Why do you want to invest in the stock market? Is it because you want to make money or is it because you want to buy a house, a car, or pay for your daughter’s tuition? 

Whatever it may be, the first thing you need to do is understand why you want to invest. Your goals will help you determine a lot of investment aspects; let’s say you want to fund your daughter’s higher education which is in 6 years from now. 

Now that you know the time frame, you will understand your risk-taking capacity. If you’re investing for retirement, your risk-bearing capacity can be higher considering you don’t need the money for at least 20 years. 

This will help you choose stocks that focus on long-term growth instead of short-term profits. 

Debt: If you have debt or you’re low on savings, consider paying off your debt and building an emergency fund before you start investing. It’s never a good idea to risk your money in investments if you have debt.

New Child: if you’re having a new child, you’re probably better off not Investing for some time. A new child brings on a lot of expenses, so make sure you have enough money before you start investing. 

So before you step out and start investing, find out why you need to invest, then move on to the next step

2. Choose Your Investment Approach

There are two ways to approach the stock market. Both are great ways to start investing. What you choose depends on your personal preference. I’ll explain both, the choice is yours.

I want to choose stocks on my own. I’ll do the research and buy and sell whenever I feel like it.

Don’t leave this page, keep reading as I’ll walk you down step by step on how you can do that. Buying and selling stocks isn’t as easy as it seems. There are a lot of aspects to look into and we’ll cover the basics here. 

I am excited about investing in the stock market but I’m confident that another person will be able to approach the market much better than I can.

It’s okay to not be great at something. Don’t pity yourself. You can approach any investment advisor and start investing. 

These brokers have expert opinions and will ensure your money is properly invested. They remove all the hassle out of the picture and focus on results.

Note: There are many investment advisory companies, but not all are good. Talk to a few, then choose the one you like.

You need to provide them with details of certain documents along with the money you’re interested in investing in the stock market. And that’s it, they’ll handle the rest. Make sure they let you see how your investments are performing from time to time. 

3. Build a Financial Cushion

Investment is subject to market risk. I’m sure you’ve heard of this before. Then why do you still invest all of your money in the stock market? Just because you made some money right off the bat? Don’t be foolish. 

The stock market is extremely volatile and highly risky, one wrong step and you’ll see all your money wiped away. I recommend you first maintain an Emergency Fund, then think about investing. 

An emergency fund will cover at least 6 months of your expenses and will be perfect for you in case your investments go to zero. It might not happen but it’s always good to prepare for the worst. 

You should maintain another savings account for your expenses and also open a fixed deposit account and put some additional money in it for more security. 

Having some money aside will keep you away from panicking the next time you face a shortage of money.

4. Open an Investment Account

Now that you have saved enough, it’s time you open an investment account. Want to choose, research, buy, sell, and hold all by yourself? 

Use an online stock broker

There are over 100 such online stock brokerage companies that will let you use their platform for nominal charges. 

A great online stock broker I use is Zerodha. It’s extremely easy to use and understand. The brokerage charges are minimal and it’s perfect for all your investment needs. 

You can also use Zerodha to invest in Mutual Funds and commodities. They also have an app that lets you buy and sell shares in real time in just a minute. 

You can choose any other online broker of your choice, just make sure they clear out any hidden charges you might have to pay later. 

5. Begin with Mutual Funds

When you begin investing for the first time, start with Mutual Funds. Why? Simply because it’s less risky compared to directly investing in individual stocks. 

Open an app with these trading apps and get started. You can invest as little as you like. Decide your budget and you’re good to go. 

The best thing about investing in mutual funds is that you don’t need to think about diversification because mutual funds include a pool of various stocks thus giving you enough diversification thus minimizing your risk. 

In the beginning, prefer Mutual Funds over directly picking stocks one by one. 

6. Embrace Dollar-Cost Average Investing

Dollar-cost averaging is a pro-level investment strategy that focuses on reducing risks and uncertainties by Investing equal amounts at specific periods instead of investing all the amounts at once. 

Let me give you an example, Varun has Rs 10,000 to invest. He can either invest 10,000 all at once or invest Rs 500 each month. The benefit? There can be a possibility that the market gives low returns when or after he invests the entire 10,000. 

So to avoid and reduce risks, he can invest 500 a month. A few months may be bad while others may generate profit, the average of this gives an investor great returns. 

A Systematic Investment Plan (SIP) is just that. A SIP is a plan where investors make equal payments into a mutual fund or other investment instruments to minimize their risks. This also gets you into the habit of saving and investing regularly. 

7. Educate Yourself On The Stock Market

Get educated stock market

You won’t become a Stock Market Guru in a year, even in 5 or 10 years, you won’t. No one can master the stock market. The best traders can only make educated guesses and try the odds. 

The stock market is easy to understand – you buy a stock when the price is low and sell it when it’s high. Yes, that’s correct. But how do you know when a stock hits a low? Or when it will increase in price? 

Other than just random guesses and praying to make a profit, why don’t you learn about the market? 

Here are a few places for you to learn about the stock market:

1. YouTube

There’s nothing better than free knowledge. YouTube already has over 1000 videos focusing on finance and investments. Just browse, subscribe to the best YouTubers, and learn from them. 

2. Udemy & Skillshare

Stock market for the elite, investing for the long term, how to never make losses in the stock market; such in-depth high-quality videos are available on these platforms. 

Note: You will have to pay money for these courses but most of them are worth it.

Click here to get One Month Free Trial from Skillshare.

3. Bloggers

In case you didn’t know, I’m a blogger, and there are at least 10 other great bloggers like me who teach finances. Get on their email list by subscribing and reading all the blogs they have. 

The more you read about finances, the more you’ll be better at investments. Learning only about investing won’t benefit you as you need to save and make money to invest money. 

4. Newspapers 

Yes, the good old newspapers are still the best way to learn, maybe not as fast as the next option but it’s a great way to learn and master finances. Newspapers are filled with information about all sorts of things from celebrities to companies to sports. 

This is your ultimate tool to grow your knowledge. Reading the newspaper daily will strengthen your financial IQ.

5. Financial apps

Apps like Money Control give you the edge that you need by giving data immediately. Articles from such apps are the best way to learn about the stock market and other investments. 

The language used in these articles is a bit tough to understand but the more you read, the more you learn. I recommend everyone to download a stock market-oriented app like Money Control.

6. Facebook Groups

It doesn’t get any better. Surround yourselves with like-minded people. It’s the fastest way to learn a subject. 

Many Facebook groups talk about investments, just by reading these charts, you’ll learn so much; my favorite Facebook group for the stock market and personal finance is Banking & Investment Ideas by CashOverflow. There are many others too, do your research and join 3 to 4 such Facebook groups.

8. Gradually Venture into Individual Stocks

When you feel comfortable investing in the stock market, start investing directly in individual stocks. Doing this means you won’t have the awesome benefit of dollar-cost averaging, so do your research before buying any stock. 

  • Don’t buy a stock you don’t understand
  • Start with large-cap stocks
  • Diversify your stocks

Make sure you don’t over-exceed your stock portfolio unless you want to heavily invest in stocks. Also never focus on a single stock; if a stock is appreciating at a rapid speed, chances are it will depreciate at a rapid speed. Keep your distance from such stocks by diversifying your portfolio.

9. Diversify Your Portfolio

I’ve already discussed this above. Many investors don’t diversify and only invest in 2-3 stocks that they love. When those stocks crash, investors who don’t diversify lose all of their investments. 

They blame the stock market for their losses. If only they would’ve diversified, losses wouldn’t be such a problem for them. How much you should diversify solely depends on your age. 

If you’re young, you should diversify less compared to a person in his 40s as your risk tolerance is high. 

10. Invest For The long term

The stock market is confusing, but sticking to the basics can make you good money. Long-term investing is the strategy used by many investors and you should also stick to long-term investing. 

The Best Time To Invest In The Stock Market

Understand where you invest your money

Numbers don’t lie, time and again it has been proved that the stock market is a great platform to grow the money you earn.

The best time to invest in the stock market was yesterday, the second-best time to invest in the stock market is today, not tomorrow! What I’m trying to convey is that don’t wait for something to happen, just start investing. 

Every day isn’t a bright day to start, some days the market is bad while some days it’s great, don’t waste time timing the market, instead start with little and gradually build your stock portfolio. 

The fear of investing in the market brings you down, I know, but that doesn’t mean you shouldn’t grow your money and be happy. 

So don’t be afraid, take care of your finances, and start investing from today. It will be the best decision you’ve ever taken.

Have you started investing in stocks or mutual funds yet? If not, don’t wait here. Open an account today and get started right away!

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