The term wealth invites pretty of interest. We all have an inherent desire to be wealthy and rich and have enough money with us to enjoy our life. Almost everyone around us harbours the same desire and is always on the lookout to make it into reality. But that is where people find it hard. But is building wealth a hard step? Not that it is. Investing in stocks is one major way to increase wealth and a larger pool of money in the long run. We’ll let you know how you can do so? Read along.
How to Build Wealth by Investing in Stocks?
Investing in stocks is one of the best & fastest ways to create wealth for the future. Here’ we’re going to mention some wealth-building strategies that can help you making wealth for the future.
Start with a Financial Plan
The first step towards building wealth is creating a plan. It’s rightly said that a goal without a plan is merely a wish. So you need to plan it accordingly. Start by understanding your investment goal. Why do you want to build wealth? Is it to realize your long term goals like retirement or build a house or maybe to fund your child’s education? When you have a clear investment goal, you can then plan it accordingly so as to create the required wealth for future financial goals.
You also need to assess your financial stance and your risk appetite. For say, if you earn around Rs 50,000 per month and your expenses amount to Rs 40,000, the amount that you can separate aside for investment is around Rs 10,000. That will give you a clear idea of factorizing the investment choices that you should go for. A thing to remember is that the stock market is dynamic in nature and hence the returns may vary so it is wise to invest according to your risk appetite.
Select the Stocks for Long Haul
The quote ‘Compounding is the eighth wonder of the world’ suits perfectly for the stock market. The stock market is a field where those who are in the long haul generate the highest wealth. Don’t fall prey to the news of some overnight success stories because those are far and few in between. The secret to creating wealth lies in perseverance. Always look to invest in stocks that you are willing to hold onto for the long haul. Find the stocks that are fundamentally strong and tend to have an economic moat about them as they will help you to generate returns in the long haul. You can also opt for blue-chip stocks as they are thought of as well as stabilized and fundamentally strong ones.
Apart from that, depending on the investment goals, you can also select between growth or dividend stocks. Growth stocks tend to have an aggressive stance when it comes to increasing in value whilst dividend-paying stocks gives regular dividend income apart from capital appreciation.
On average, the stock market tends to offer better returns than other money market instruments in the market whether its fixed income instruments or other options. That return, when compounded for the long haul, makes it one of the best ways to build wealth as desired. So the onus is always on selecting the right stocks that can be held for a substantial future.
Create a Diversified Portfolio
Ever heard of the quote, ‘Don’t put all your eggs in one basket’. The stock market stands true to it as it is dynamic in nature and you cannot predict the outcome of the market accurately every single time. Tracing the investment scene in India, people still prefer the fixed income-based investments as that helps to reduce the risk. But looking back, the stock market although being a performance-based investment scene offers better returns in comparison to the other investment options. So, in order to mitigate the risks and still attain the best of returns you can opt for a diversified investment portfolio.
Don’t invest all your hard-earned money into the stock of one single company and rather look to diversify them across by investing in different companies and assets. We’ve heard of people investing in the market without doing their research and analysis beforehand. This way the risk metrics may become too high as the company they have invested into may not always perform well always and may even end up winding down. Do your thorough research and invest money into those stocks that look set to perform. And if the market dynamics end up hurting one or two of assets, your other stocks will help subsidize the loss and keep your portfolio afloat. It’s a great tactic that is used along by seasoned investors as well as the newbie ones.
Don’t time the market: If you have browsed through the web looking for the fastest way to build wealth in the stock market then this phrase may ring your ears. Timing the market means buying low and selling high. But what if we were to say that it doesn’t work that way. We talked about the aspect of overnight success is far and few in between in the stock market. Timing the market is never a good idea and even the finest of the investors stay away from it.
We’ve seen people venture into the market even at the slightest of a plunge to gain an advantage of timing the market. When we tend to ride on the momentum and seek to trade off the shares to generate quick profits, we oftentimes end up making losses as the aspects of brokerage charges, taxes aren’t taken into consideration and that piles up a lot. Look to avoid short term fluctuations and don’t indulge in making rash decisions.
We all tend to have an investment goal and based upon that we invest in the market accordingly. We often tend to invest in such a way that the highest of returns can be achieved whilst lowering the risk factor. For say, you wish to have an 80 per cent equity and 20 per cent of bonds. The market dynamics may create a change in the ratio of your investments. So it is wise to review your portfolio and make timely changes so as to align with your investment goals. That’s what portfolio rebalancing looks at.
And if you find some of the stocks in your portfolio making losses, you can cut the losses and sell them off and invest in other stocks that will help yield high returns for you. Similarly, if you find that some of your stocks have generated sufficient growth then you can also book the profits and reinter the market later on. Booking profits is an important aspect of making wealth in the long run and it is advised to do the same accordingly based on time period.
Don’t Get Emotional
As humans, we tend to associate things with emotions. We’ve seen ourselves get attached to material things and give them emotional weightage. It’s not that it is a bad thing but when it comes to the stock market, it’s ill-advised. Your goal is about finding the best way to create wealth and for that, you will have to be logical and strategic about your stock investments. Be watchful of your stocks and their performance.
Whenever people see the market being a bullish one, they tend to hold onto their investments in the hope that the stock price will continue to rise along. That’s plain greed and it may hamper sometime as the stock price may plummet soon. Similarly, there’s also fear governing the stock market where people see the price drop a few notches and tend to sell the shares so that they don’t end up losing more. That also affects their wealth-building proposition. It is advised to not give in to the sentiments and hold your investments even when the market trend is otherwise or jump in into every single surge in the market in a bid to generate quick profits. Both of these aspects will hamper your books and the intended wealth-generating trajectory.
Take Help from Experts
The stock market is quite a vast area and India still has only over 2 per cent of people investing in it. It is understandable that the need to understand the market, study the market functioning and trends on a regular basis can be a hectic task and many people avoid it because of that too. However, that doesn’t mean you should avoid investing in the stock market as it is one of the best wealth-building strategies around. You can seek help from professional experts who shall guide you along and advise you on the stock market investments and can provide you with stock market tips.
It’s not that to say there aren’t any other means of building wealth. But when put to comparison, stock market investment offers the highest returns among all other investment options and is a perfect way to generate wealth. Whatever the strategies and techniques around, the stock market works on simple logic and that’s the longer you stay invested, higher the chances to build sizeable wealth.