How to start investing in the stock market — A step by step guide

Building on the insights from our previous chapter on settlement timeframes and processes, we shift our focus to the broader spectrum of investing. This chapter will explore the initial steps necessary for entering the world of stock market investment.

One might chance upon the stock market through a wide variety of avenues. Whether introduced to it through family, an advertisement, or the recommendation of a favoured influencer, the promise of growing one’s wealth through the market is universally attractive. You might also be familiar with the stellar returns it has generated for investors over the years. 

Investment gurus have always vouched for investments in the stock market as one of the best ways of growing your money over time. However, many of us are wary of investing thousands in the stock market because of the inherent risks it carries.

But guess what - you can actually start off with a meagre amount. You can learn and experiment before investing considerable sums.

Before we go into the nitty-gritty of how to start investing in the stock market, let us understand why you need to invest in the first place. 

What Is the Need for Investments?

The simplest answer to this question is to secure the future. This can be best explained with an example. Suppose you draw a salary of ₹40,000. All your monthly expenses sum up to  ₹30,000 approximately. This means you have savings of  ₹10,000. 

Considering an ideal situation, your salary will increase with increments, and so will your monthly expenses as the cost of living keeps on surging. But you still manage to make some decent savings. By the time you reach 50 years of age with approximately 20 years of working experience, you will have some amount in savings. 

Have you ever thought if the savings will be enough to sustain you and your family for the years to come? Would you be able to maintain the lifestyle that you currently lead? If you calculate closely, you will see that savings will only be sufficient for a few years. 

What after that?

This is where the need to make investments comes into the picture!

You must make judicious investments with your savings, however big or small the amount. When you invest wisely, your money grows over the years. The earlier you start investing, the higher your accumulated wealth will be.

Proper investments ensure that you have a hassle-free post-retirement life. You can create and use your wealth to fund various needs such as purchasing a house/car, marriage, a child’s education and higher studies, vacations, etc. 

Also, there is no denying the fact that the cost of living is surging, and investments are the only way to stay prepared. So, where do you begin?

Investing in Stocks – One of the Best Ways of Building Long-Term Wealth

If you are looking for fool-proof investment ideas, do not seek opinions and advice from every second person you come across. Your ideal goal in this scenario would be to do your own research, learn the basics and bank on expert opinions. Trusted advice coupled with a steady understanding of the instruments you are investing in can do wonders for your investments.

Aiming to build long-term wealth is a smart idea to secure your financial future and stock market investments are among the best ways to work towards this.  Let’s take a look at exactly how you can do that.

Guide on How To Start Investing in the Stock Market

Let’s take a look at some of the fundamental steps to follow to start investing in the stock market:

• Set your investment goals 

This is the most important thing when you plan stock market investments. Do you want savings for purchasing a car, a home or a vacation? These are short-term goals. However, if you are planning your retirement, your child’s higher education, their wedding and similar things, you are setting long-term investment goals. 

However, your objectives will depend on your age too. If you have just started your career, you may look at long-term investment goals for higher wealth accumulation and monetary growth. This will also allow you to plan your retirement well. 

And what happens if you realise the importance of investments quite late in your life? In that case, you should look for capital preservation and income generation. 

Until and unless you have clear investment goals, you will not be able to find the right ways of reaching your target.

Here are some helpful tips which will sort your investment goals:

• Understand your finances

Do not rush into investments without having an idea of your finances. Know that you have to allocate a particular amount of money to reach your goal. Check your savings, your current income and any other financial resources you can use for the same.

• Be precise about the investment span and objective 

You should have a set objective instead of a general one. For instance, your investments should be in sync with the goals you wish to utilise the funds for. For instance, if you wish to buy a studio apartment worth ₹ 3 crores upon retirement, a monthly investment of ₹1,000 will not contribute towards that account wholly.

It is important in this regard to, therefore, ensure long-term investments and short-term investments are analysed and synced in accordance with the risk ratio that they contribute towards.

• Prioritise your goals

You might have many goals to achieve. Prioritise them. Understand the urgency and importance of each goal and plan accordingly.

• Review the goals regularly

Change is the only constant in life. In this regard, it is important to consider unfortunate events that might befall you and prepare for them as well. 

Financial objectives change, and so does financial planning. What might be your goal a year ago in the short-term scenario might not align with the requirements that you have today. In this regard, a judicious and realistic approach to investment diversification would ensure that you have all bases covered.

• Understand Your Risk Tolerance

The stock market is unpredictable, with fluctuations that can test any investor’s resolve. However, it’s also known for its potential for long-term growth. Sure, it might be known as a fact, but in the event of a market crash, your emotions take over, and logic goes out the window. In this regard, it is important to understand your risk tolerance before investing.

Risk tolerance refers to the amount of risk you would be able to endure given the volatility of a market instrument. For instance, large-cap stocks or indexes would be comparatively less volatile when compared to their small-cap counterparts. The volatility of the instruments you invest in is a fundamental part of the kind of returns you would want in the future. 

While everyone desires high returns quickly, achieving them involves balancing the risk-return ratio. High-risk investments may offer the possibility of higher returns but come with increased volatility. Low-risk instruments, on the other hand, are more about protecting your capital and investment amounts along with a more stabilised return. Self-assessment is your only guide in this situation. 

• Choose an Investment Account

Now that you have fixed investment objectives and you know your risk tolerance level, it is time to choose the most suitable investment account. To make investments, you will need an account in the first place, which is known as a brokerage account. 

Some of the most common investment accounts are -

• Retirement accounts [employee retirement plans and individual retirement accounts (IRA)] 
• Taxable brokerage accounts [individual brokerage accounts, joint brokerage accounts and managed accounts] 
• Accounts for specialised goals [health savings accounts, dividend reinvestment plan accounts, trust and custody accounts and education savings accounts)]. 

Make sure that you know about each of these accounts individually along with their benefits and features. Seek professional advice from investment experts as to which account will be best for your trading. 

• Learn the Basics of Investing

Once you have decided which investment account is the most suitable one for you, it is time that you start learning the basics of investing. Stock gurus and guides keep learning new strategies and tips to get the most from the market. If you want to be a successful investor, you need to have a solid foundation of the basics. 

If you think you are smart enough for the stock market, you are wrong. This dynamic market throws unprecedented surprises. Thus, you must learn and relearn the basics of investing regularly. Review your investment goals, check your investment style, choose the right investment account, and so on to become successful in the stock market.