Equities are the most important part of a portfolio for better returns. Looking at the history of stock markets, equities have outperformed every other asset class in the long run across the globe. The stock market does better in a relatively stable political and economic scenario. Equities are liquid in comparison to other avenues of investment. Investing in the stock market is more risky than other avenues of investment. In addition, it demands more time from the investor. But it can turn out to be more rewarding than one can imagine. In this article, we will discuss the basic points which should be kept in mind while investing in the stock market.

Better to bet on big ones

Investors should always buy into a good company. Buying into a good company reduces risk. The company which has reported consistent profits in recent years falls under this criteria. The risk is diminished with the companies with bigger market capitalization as they are less likely to fail. One may go for the companies from major indices of markets like Nifty and Sensex. But there are other factors which should also be considered before going for these.

Long term approach is fruitful

Everyone should understand that there is a big risk associated with stock market investment. But this risk gets reduced when investors decide to put up money with a long term approach. An approach of five years or more proves to be very fruitful. With this approach, the investor not only participates in the long term development of the company, but also helps himself in wealth making. Investors must take note that in a short term approach, the performance of a share is more affected by the mood of the market and less affected by the fundamental strength of the company.

Big dips are opportunities

We see investors panicking when the stock markets tumble. But it is always better to keep some cash in hand and wait for such dips in the stock market. Such big dips make the gems (good companies) cheaper and one can collect a good number of shares at that time.

Diversification is a must

Investing hard earned money in only one sector is not a wise decision. Hence, diversification is the key in equity market investment but this doesn’t mean that an investor should have a large number of companies in his portfolio. Investment in 10-12 stocks is enough as these are easy to track. One shouldn’t invest more than 10 per cent of his capital in any scrip.

Review of investment is necessary

Though equities offer better returns in the long run, this is not always the case. One should always review the investment from time to time. It is better to bid adieu to the shares which are not performing. One should review investments after every three months. Yearly reviews should be done as well. Apart from a review of the stock market investment, investors should keep on reviewing their financial goals and whether those are being achieved. In addition, the risk taking ability should also be reviewed.

Last but not the least

A number of people borrow money to invest in stocks. One should remember that this is a double edged sword. As we know, investing in equities is risky and it is better not to pay interest for the money which is being put there. It’s always better to invest the money which is not needed in the near future.