How To Reduce Risk While Investing In Equities

Investing in the Stock Markets does not necessarily mean you need to take any unwanted risks. In this post we will share ideas on how you can reduce risk while investing in the stock markets,

If you want to know more about investing in equities read:

1. Enter the markets from a long term prospective.

Enter the markets from the prospective of a long term investor. Invest in fundamentally strong shares – companies that have strong financials and are expected to do well in the future.

Fundamentally strong companies generally display the following characteristics:

  • Presence of a strong business line.
  • Backed by a good management. 
  • Delivered consistent growth in profitability over the years. 
  • Is able to generate positive cash flows. 
  • Has a strong market presence. 
  • No immediate threats – is expected to continue to grow in future. 

2. Do not enter the markets with borrowed money or money that you have an immediate use of.

Always put money into the markets that you can keep invested for atleast 1 -2 years. If you have some surplus money that you need in 1-2 months from now, lock they away in a Fixed Deposit scheme but never invest them in the stock markets.

3. Do not go by market rumours.

Do not go by markets rumours. As reiterated above always invest in companies that you are confident have a growth potential going forward. Every time you consider buying a share ask yourself why you should buy the same. Invest on the basis of your research and not because you’ve heard from someone that a stock is expected to do well.

4. Don’t invest all your savings into the market in one go.

Its never wise to invest all your savings into the market in one go or into one stock – specially if you are new to the stock market. I would suggest that you start small and then raise the stakes as keep learning more about the markets. The more time you spend in the markets the more you learn.

5. Invest in businesses that you understand. 

Warren Buffet had once very famously said, “Risk comes from not knowing what you are doing.” With a through understanding of a business, you are better equipped at getting the timing of your buy and sell decisions right – which greatly impacts whether or not you make a profit.

Thanks for your time and happy investing!

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