This is something we all dread! This risk is probably one why we’re all so apprehensive about investing our money in the share markets. But the rule of investment, on which the market thrives is – Higher the risk, higher the returns. So you cannot really play safe when it comes to the stock market – instead, you can be better prepared to handle the crash in the share market. Read on for how to do it.
The first reaction, which is entirely justified is to panic. But in no way does panicking help. Under panic mode, many investors lose their cool and end up making decisions and steps which they would only regret later. So the first and foremost thing you can (and should) do is to keep your cool.
Don’t sell off your shares indiscriminately:
Fluctuations are the rule of the market – if it crashes one day, it will rebound and achieve stability in some time. You have to wait for this to happen – give the market some time to recover and then decide whether you actually want to keep the shares you own or sell them off. Selling off the shares right away, the moment you get to know that the market has crashed won’t make any sense at all. So wait, watch, and then make your move. You can even consider the opinion of someone who knows the in and out of the market to validate your decision and then act.
Don’t wait for the crash to happen:
Some stocks aren’t really worth the wait. So don’t wait until the market crashes. Timely actions will work best for you – if you don’t really like to take unnecessary risks. Watch the market and buy and sell stocks according to the market conditions. Leave the stocks which show results over a long time – while you may keep toggling with the other stocks once a while as per the conditions of the market. This will keep you in a better position to face a crash in the market.
All the stocks will be at an all time-cheap price – so jump in and buy the ones you feel will pick up soon after the stock market aftermath! You need not hesitate even a bit to invest at this stage because the all the stock prices will have already hit rock-bottom and you can easily buy them to make a profit in no time – when the market stabilizes after a while.
Investments are an essential aspect of our lives. But when it comes to the pros, they’re in a much better position to handle their finances. The actual ones who freak out are the laymen – who aren’t well versed with how investments work. So here’s a brief about the difference between Low-risk investments and high-risk investments – something you should know to make better investment decisions:
Low-risk investments are a safe bet and the best for those who are beginners with investments. When compared to high-risk investments, the low-risk ones are way better when it comes to security from losses. Also, the losses incurred in the low-risk investments are minimum, without having a greater impact on your finances. Government treasury bonds can be safely included in the low-risk investment category, as they have sure-shot returns, without any possibility of loss. You may not have exorbitant returns, like the high-risk investment, but you will surely have returns that will definitely add up. Low-risk investments will give you the confidence you require in the beginning of your investment endeavor, so it’s advisable to start off with these first. Even later, when you look to diversify your investments, it is advisable to keep a certain portion of your finances invested in the low-risk investments.
The rule of investing is pretty known – higher the risks, higher the returns. That pretty much sums up the high-risk investments. If you’re looking for high returns, the high-risk investments will fetch you exactly what you want. But don’t forget that they come with riders too – when it comes to high-risk investments, the magnitude of the returns is high, so is the magnitude of losses. You need to be really careful when you invest your funds in high-risk investments, and you would have to monitor them closely. It is advisable to have enough knowledge about high-risk investments and the ‘risks’ they come with to be in a better position to handle any crisis in the stock market and react suitably.
Investment is a game – it’s best you know the rules, so that you know how to figure your way through it. Also, place your eggs in different baskets – ensure you have the right mix of low risk, medium risk, and high-risk investments to get the best possible returns out of your investments.
There is a lot of enigma around the capital markets for the lay people. They are so afraid about the risks attached to the capital markets, that investing in fixed income generators is what they settle for. But then if you really want to earn inflation-beating income, you have to shed away all your fears and take baby steps towards investing in the capital markets. So here we go, with a beginners guide for those looking to start investing in the capital market. Read on:
How much of your investments should be in shares?
Well, this totally depends on your age. When you’re younger, it’s a lot easier to bear risks and recover from losses if and when they occur. It’s easier to experiment, make mistakes, and learn from them at a younger age – so it is advisable to take the maximum risk at this age. The rule goes as such – subtract your age from 100 – the resulting figure is the percentage of your money you should be investing in shares. As you age, this number will reduce – which means more of your funds will be in safe, secure, fixed income yielding investments.
How many types of stocks should you buy?
Stick to this excellent rule of investments – place your eggs in different baskets! This is a fantastic rule which keeps you secure from the fluctuations in the market. The market is subject to ups and downs with certain stocks performing well and others losing out. So in this scenario, if you have your eggs in different baskets – that will leave you worry-free and with a steady flow of returns. Make sure you research thoroughly and invest in shares of low risk, medium risk, and high risk – and you’ll be good to go!
Whether to opt for withdrawal or reinvestment of dividends?
Now, this totally depends on your current financial situation. If you require the returns to manage your significant expenses, withdraw them as and when the dividends are announced. If you can do without withdrawing the dividends, it’s best you reinvest them. Statistics have shown that reinvested dividends have reaped way more returns and have proved to be very beneficial not only to the company offering the shares but also for those reinvesting the returns.
Taking risks and seeing how you fare through them is the only way you have – you have to brace yourself for two extreme scenarios – exorbitant returns or equally magnanimous losses.
The most primitive, basic lessons of investment talk about the Invisible Hand of the Market – because it is a concept which rules the market. The Invisible Hand of the Market is the reason behind the fluctuations in the market – but most of us aren’t really aware about this Invisible Hand of the Market and how it works – so here we go, with a detailed explanation.
The Father of Economics has been credited with coming up with this simple concept, which he has explained fantastically in his book – Wealth of Nations. He describes the Invisible Hand of the Market to be the force which influences the market by bringing both the forces of demand and supply to the point of equilibrium. While this force isn’t visible, it’s an intangible concept which regulates the market.
This concept works only in a free market though – where there are no rules, regulations, and interference of the government. The Invisible Hand of the market works best under conditions where people are allowed to buy and sell freely. In such a free market, the market would flourish as those willing to buy are free to buy what they want to without any hesitation and obligation towards the law, tying them down. Also, those selling would be in a better place to offer what the buyer is willing to buy at a price which will ensure maximum buyers buy the commodity. There would be a healthy competition in such markets as the sellers will be in a position to even reduce the price to encourage buyers to buy the commodity from them.
Basically, the concept of Invisible Hand of Market works in a free market economy in this way – when people demand what they require and wish to buy, the sellers will automatically produce those commodities and supply them at a consumer-oriented price. This makes it a win-win situation for both.
Even in markets that are regulated and not free – which is the case these days – the Invisible hand of the Market still works- albeit not in a full-fledged manner. The regulated markets too function based on the equilibrium brought in by the Invisible Hand of the market. The results may not be as obvious as in the free market scenario, but yes, without the Invisible Hand, the functioning of the market will be near impossible.